HVAC Drepeciation in Residentila Rental

[jamesveng]

Hi,

3 questions regarding my residential rental

1. TT is letting me depreciate my $8900 entire HVAC  prior to Jan 1 2023. But the software never gave the option to choose heating and ac as a definition or category. Is this a sec 179 on the minimus?

2. Are the install fees. permits, labor an expense

3.if I choose to depreciate over years the software says that it is a 5 year depreciation? Help??

Thanks in advance,

james

[AnnetteB6 · Accepted solution]

An item that costs $8900 cannot be deducted under the de minimis rule.  The cost must be under $2500 to qualify for that special tax treatment.  Also, section 179 treatment is not available for rental properties.

Installation fees, permit costs, and labor for installation are included in the total cost of the HVAC, not just the cost of the HVAC unit itself.  You would not deduct those expenses as a separate item on their own.

Depreciation of a new HVAC unit is over 27.5 years, not 5 years.  If it is a central unit that becomes a component of the house itself, then it is depreciated over the same time period as the house.  You would choose 'Residential Rental Real Estate' as the asset category when entering the information for depreciation.  

[jamesveng]

Thank you so much!

I am still unclear as to how to enter it in the description?

Is it real property or equipment?

Thanks in advance,

james

[AmyC · Accepted solution]

The HVAC is entered as a stand alone item. When entering in the program, we have to look at the class life to determine the right answer. Rental real estate option will depreciate over 27.5 years, which is what we want. So, the wording may not say HVAC, but that is the correct place for it. If you chose equipment, the depreciation would not be right.

Reference:  Publication 527 (2022), Residential Rental Property - IRS shows in table 1-1 that HVAC is an improvement. Table 2-1 shows 27.5 years of depreciation.

[Carl]

A new central air unit becomes "a physical part of" the structure. Therefore it's classified under MACRS as Residential Rental Real Estate and get depreciated over 27.5 years. It is not eligible for SEC 179 or SDA. Since it was more than $2,500 it's also not eligible for safe harbor.

[jamesveng]

Thank yo for the insight!

In the Desribe This Asset page I choose Rental Real Estate Property.

Then press continue,

Where it takes me to Tell Us A Little More page.

My options here are:

LAND IMPROVEMENTS

RESIDENTIAL REAL ESTATE

AMORTIZABLE INTANGIBLES

NONRESIDENTIAL REAL ESTATE

QUALIFIED IMPROVEMENTS-NON RESIDENTIAL

ROOFS HVAC FIRE NON  RESIDENTIAL

OTHER ASSET TYPES

It seems my only option is RESIDENTIAL REAL ESTATE. Where it then asks me for the land value of the asset.

Help!? Do I enter zero in land value since that was established in my initial tax filing for this rental in 2017?

Or is it redundant and add land plus HVAC?

Thanks in advance,

James

[ThomasM125]

Rental Real Estate is the correct choice. You would not enter any land value since that was entered when you entered the house for depreciation.

[PenelopeNC]

Purchased new HVAC for residential rental property. TurboTax isn't showing any depreciation expense for 2023 or 2024. I can calculate it myself using 27.5 year life, but what depreciation method do I use? (SL?) Entity is LLC. Can't take Sec. 179 because there's no business income, even though the company is now profitable. 

[PatriciaV]

Yes, capital improvements that add to the value of your rental property are normally depreciated. You can see a list of typical improvements here: How do I handle capital improvements and depreciation for my rental?

However, you may be able to write off these costs if you qualify for the Safe Harbor Election for Small Taxpayers. TurboTax will ask you about this election under the Assets/Depreciation section of your Rental Property. If you choose this election, you can expense up to $10,000 in costs that would otherwise be depreciated over a very long time.

Rental Improvements are depreciated using the same depreciation method as the Rental Property itself - straight-line over 27.5 years (asset type I - Residential rental real estate). When you enter the asset under Assets/Depreciation from the Rental Summary, TurboTax will calculate the allowable depreciation for this year and display a summary of the deduction on the Asset Summary page (click the box for "Show Details").

Also, if you click Continue at the bottom of the Rental Summary, you will see a page "Your Profit or Loss Results So Far" that compares you net income/loss to your deductible loss for this property (if any).

[Carl]

There will be no depreciation shown on your 2023 taxes, for the 2024 tax year. Only for the 2023 tax year beginning with the date placed in service. Most likely, you're misunderstanding the screens (of which some are not clear) on the information being asked for when you enter the HVAC in the assets/depreciation section.

Classified as residential rental real estate, which as you know is 27.5 years to depreciate

Date placed in service is the date it became operational

Business use percentage is 100%

Cost is what you paid for it, including shipping, installation, and any other expenses related to the HVAC.

Cost of Land is $0.

The program will use the MM/SL convention and depreciation will start from the 15th of whatever month it was placed in service.
Note that the 1st year depreciation will be lower than the years that follow, since it was not in service for all 365 days of the tax year.
TO check the math, see IRS Pub 946 at https://www.irs.gov/pub/irs-pdf/p946.pdf and use the MACRS worksheet on page 36. For line 6 of that worksheet, use table A-6 on page 71.