What options do I have in home office deductions for a new ac/heat unit for my home to replace a broken unit?

[Opus 17]

If you are taking the home office deduction and this is a room A/C for the office space and it is less than $2500, you can expense it.  If it is a room A/C for non-office space, you can't take anything.  If it is the whole house A/C/heat system, and the cost is more than $2500, you depreciate it as a business asset over 20 years.  You take the depreciation deduction based on the square foot percentage.  Turbotax should allow you to enter the item as an improvement to the home that is subject to depreciation.

If the total cost is more than $2500 but the business share is less than $2500, you might qualify to use the $2500 safe harbor to expense it all at once, I would expect turbotax to let you know.

And, any part you expense or depreciate for the home office reduces your cost basis in your home must be used to reduce the amount that the improvement otherwise increases the value of your home.

[TaxGuyBill]

Just a couple of clarifications:

If you qualify for, and actually make the De Minimis Election, you can deduct the room AC/Heat unit if it is under $2500.  Otherwise, if it is over $200 it is depreciated (probably over 7 years).

The whole-house AC/Heat unit is depreciated over 39 years, multiplied by the business percentage.

[dagber]

Deprecates over 39 years?! In what world does an HVAC system last 39 years?

[DaveF1006]

It doesn't but that is the depreciation allowed by the IRS. If the house was a rental unit, it would be depreciated over 27.5 years. I looked up how long a normal unit would last and it could last 15-20 years. This is something that may need to be changed in the tax code.

[Opus 17]

---

@dagber wrote:

Deprecates over 39 years?! In what world does an HVAC system last 39 years?

---

I would trust any answer  @TaxGuyBill gives without question.  In this case, commercial property (such as a factory or standalone office) is depreciated over 39 years.  So I assume that any property that is permanently attached to the commercial property also takes the same depreciation period.  (As opposed to portable equipment which would keep its own life.)  In this case, the "commercial property" happens to be the taxpayer's home office.  

Now, I believe that if the asset is "retired" early, meaning it is taken out of service and has no salvage value, the remaining un-depreciated value can be taken as an expense at that time.  But I don't guarantee that is correct.  

[dagber]

Definitely not questioning Bill the Tax Guy, just the logic of a deprecation timeline that clearly outlives the item being deprecated. Though your input adds light that makes some sort of sense, especially the bit about retiring said item and collecting the remaining value at that time, and I appreciate it.

The home housing my home office received a new roof & hvac this year, neither of which will last 39 years. Home office is 12% of home & then stretch those values out over this 39-year timeline and, well, my total tax benefit from this $$$$$ investment was a whopping $27... le sigh.

[Opus 17]

@dagber 

Would you be better off with the simplified method?  I believe it is a flat $5 per square foot, and you don’t deal with depreciation or depreciation recapture (because you have to pay income tax on all the depreciation you previously took when you sell the house).  
https://www.irs.gov/businesses/small-businesses-self-employed/simplified-option-for-home-office-dedu...

[dagber]

Huh, maybe? I will look into that further. Thanks @Opus 17!