I replaced an a/c for a rental property. How to calculate the depreciation expense of this?

[wendyle1993]

Can this be counted towards expenses in that year?  Thanks!

[DianeW777]

It depends.  This would be considered a capital asset for depreciation. However, if  you qualify you could expense it under the Safe Harbor Election for Small Taxpayers.

Here are the rules you need to meet to take this election:

• Your gross receipts, including all your other income, are $10,000,000 or less.
• Your eligible building has an unadjusted basis of $1,000,000 or less.
• The cost of all repairs, maintenance and improvements is less than or equal to the smallest of these limits:
  • 2% of the unadjusted basis of your building or
  • $10,000

 If you find you do qualify for this option and you want to take the full expense in one year for the AC system, use the steps below to enter it in your return. 

1. When you come to the screen, Did you buy any items that each cost $2,500 or less in 2023? mark the Yes or No button and click Continue.
2. On the screen Let's see if you qualify to deduct these items as expenses, mark both of the Yes buttons and click Continue.
3. On the Now, let's review each item you bought screen, mark whether all your new assets cost $2500 or less.
4. If you mark that every item cost $2,500 or less, you will be brought to the Rental Summary screen.  You have elected the De Minimis Safe Harbor provision.
5. If you mark that some cost above $2,500, you will be asked Did you make improvements to rental in 2023?
6. If you say Yes, you will be taken through the screens for the Improvements election.
7. If you say No, you will see the screen Do you have any items that aren't covered by your elections?  Proceed through the screens to enter these assets.
8. On the Rental Summary screen go to the Expenses section and click on the Start/Update box.
9. Continue to the Any Other Expenses? screen and enter the description and amount paid for the assets. Click Continue when finished.

Keep a record with your tax return showing you made this election for this asset if you expense it under the Safe Harbor Election for Small Taxpayers.