I just replaced a whole building HVAC in a building that a rent out to a commercial business. The system is a one unit heat pump with ducts. I'm not sure if this is considered a "stand alone" system that can be depreciated over 7 years or should be depreciated over 27.5 years. Which is correct....thanks..
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The HVAC system is a standalone unit which becomes a component of the house itself and gets depreciated for the same time period as the house which is 27.5 Years. When inputting in the software do not chose equipment as the category, instead choose “Residential Rental Real Estate” as an asset category.
Thanks for the quick reply. As a follow up, do I have a choice of what method of depreciation to use or must I use the straight line method that Turbo Tax selected?
Thanks again.
You must use the straight line depreciation for Residential Rental Real Estate, which is anything that actually attaches to the building itself if adding it as an asset is required.
The IRS has a Safe Harbor Election for Small Taxpayers. This option for the HVAC may be eligible for the Safe Harbor Election for Small Taxpayers (does not apply to the concrete balconies or HOA assessment):
Here are the rules you need to meet to take this election:
If you find you do qualify for this option and you want to take the full expense in one year for the HVAC system, use the steps below to enter it in your return.
Open your TurboTax return:
If you do use the Safe Harbor Election for Small Taxpayers, be sure to keep all records because these expenses will lower the cost basis of your property when you sell in the future.
IRS definition of Structural components (for your review):
Parts that together form an entire structure, such as a building. The term includes those parts of a building such as walls, partitions, floors, and ceilings, as well as any permanent coverings such as paneling or tiling, windows and doors, and all components of a central air conditioning or heating system including motors, compressors, pipes, and ducts. It also includes plumbing fixtures such as sinks, bathtubs, electrical wiring and lighting fixtures, and other parts that form the structure.
@jeffntexas wrote:rent out to a commercial business.
Is this an external unit? If so, as a commercial/business rental, it is depreciated over 39 years using straight-line.
However, does this rental rise to the level of a "trade or business"? If so, HVAC for a commercial/business rental can use Section 179. But IF that is the case, you will need to adjust line 11 of Form 4562 to include the gain/loss of the rental. I am unsure if that can be done on the online version or not.
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