Sch E questions on my rental properties

[bbb]

I'm wondering.  If I install a new HVAC system for say 5000 can I elect to deduct the entire cost under 179?  Same goes for windows 3500 and counter tops 2800.  I have read pub 527 and 946 but am still not certain.  Any help would be great - thanks to all in advance.  Please only answer if you really know.

[Carl]

Yes, you can. When you enter the asset in the Assets/Depreciation section the program will give you the option to elect the SEC 179 deduction. But you may find it not worthwhile and of no tax benefit at all in the tax year placed in service. That's because traditionally, residential rental property operates at an ever increasing loss with each passing year, and the losses just get carried over year to year. This is especially true if there is a mortgage on the property. So with assets placed in service that total to $10,300 using your figures, you may just be shooting yourself in the foot in future years if you take the SEC 179. But it doesn't hurt to work it both ways to see if there is any difference to make it worth while. Overall though, I don't recommend the SEC 179 deduction if it's not going to make an "appreciable" impact on your tax liability.

So in conclusion, if you have a mortgage on the property, I doubt SEC179 will be of any tax benefit in the tax year you claim it for, anyway.

[Carl]

I just realized something. The countertops and windows are classified as "Residential Rental Real Estate" and therefore have to be depreciated over 27.5 years. You don't have a choice on that.

As for the HVAC, I'm not sure, but I "think" you can classify it as an appliance which makes it depreciable over 5 years, and would therefore qualify it for the SEC 179 deduction. While the windows and countertops are without question a bona-fide property improvement that becomes "A material part of" the property and therefore classified as residential real estate depreciated over 27.5 years, one can look at the HVAC both ways. The ducting is "a material part of" the property, without question. But if all you replaced was the compressor outside and the blower inside, I would "think" you can classify those as appliances.

Looking back at my own rentals, when I replaced a compressor and blower back in the early 2000's, I classified it as an appliance and did not take the SEC 179 deduction since it didn't benefit me to do so. That "appliance" was depreciated over 5 years.