jklcpa Posted May 13, 2014 Report Share Posted May 13, 2014 (edited) Client will spend $6700 on a new A/C unit this year and she takes the home office deduction. Am I correct that this is 39 yr life and can be depreciated based on sq footage of the office to the total just like the home itself is depreciated? No more energy credits either, right? Edited May 13, 2014 by jklcpa oops, fixed the life to be 39 yrs Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted May 13, 2014 Report Share Posted May 13, 2014 Add the cost to the basis of the home. The form will calculate the proper amount of depreciation. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted May 13, 2014 Author Report Share Posted May 13, 2014 Right. I think she's going to end up with ~ $13 in additional depreciation this year, and a tax savings of a couple of dollars. I've spend more time answering her emails that this is worth because from the way she wrote to me, it sounded like her rental property on the first go-round. I'm anticipating her next (typical) questions...why 39 years when the unit will last only 14? What happens then? Blah, blah, blah. 2 Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted May 13, 2014 Report Share Posted May 13, 2014 Right. I think she's going to end up with ~ $13 in additional depreciation this year, and a tax savings of a couple of dollars. I've spend more time answering her emails that this is worth because from the way she wrote to me, it sounded like her rental property on the first go-round. I'm anticipating her next (typical) questions...why 39 years when the unit will last only 14? What happens then? Blah, blah, blah. Explain that when the unit goes bad, she can claim the additional depreciation which will lower the basis in the home. Then explain that the new unit installed at that point, will start the process all over. Use lots of numbers, percentages, number of years the average homeowner stays, etc.... Ask her several times if she understands, and if she says yes, ask her to explain it to you so you can be sure that she does. This conversation will last 10 minutes max... A tried and proven method. Also, bill her for the time. 2 Quote Link to comment Share on other sites More sharing options...
jklcpa Posted May 13, 2014 Author Report Share Posted May 13, 2014 Thanks, Jack. I know very well how that conversation goes, having had it many times over the years. I was just being sarcastic. It's been a rough couple of days, weeks actually. 1 Quote Link to comment Share on other sites More sharing options...
RitaB Posted May 13, 2014 Report Share Posted May 13, 2014 I always say there is a real need for a sarcasm font. 6 Quote Link to comment Share on other sites More sharing options...
JohnH Posted May 14, 2014 Report Share Posted May 14, 2014 Here's one I need on occasion, plus a second for general usage: 6 Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted May 14, 2014 Report Share Posted May 14, 2014 Or we could just agree to declare the "Comic sans MS" font to be 'our' sarcasm font. What do you think? 2 Quote Link to comment Share on other sites More sharing options...
Richcpaman Posted May 14, 2014 Report Share Posted May 14, 2014 Why isn't this 7 year property? Expected life of these units: 15 years. They are bolted onto the house and not structural components. They do not extend the life of the home. I would not take Sec179 on the units, but treatment as 7 year property would make sense. Rich Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted May 14, 2014 Report Share Posted May 14, 2014 Why isn't this 7 year property? Expected life of these units: 15 years. They are bolted onto the house and not structural components. They do not extend the life of the home. I would not take Sec179 on the units, but treatment as 7 year property would make sense. Rich It is their personal residence, and only affects OIH depreciation. Value gets added to basis of the home. Then OIH percentages apply. Quote Link to comment Share on other sites More sharing options...
mcb39 Posted May 14, 2014 Report Share Posted May 14, 2014 I found the new "safe harbor" rules for OIH beneficial this year for a few clients just because of odd situations like this one. Most of them don't like taking depreciation on their home in any case. 1 Quote Link to comment Share on other sites More sharing options...
Richcpaman Posted May 14, 2014 Report Share Posted May 14, 2014 It is their personal residence, and only affects OIH depreciation. Value gets added to basis of the home. Then OIH percentages apply. Why use 39 year property when it should be 7 year property? Whether OIH/Rental its should be 7 year property, not 39/27 Rich Quote Link to comment Share on other sites More sharing options...
jklcpa Posted May 14, 2014 Author Report Share Posted May 14, 2014 Why isn't this 7 year property? Expected life of these units: 15 years. They are bolted onto the house and not structural components. They do not extend the life of the home. I would not take Sec179 on the units, but treatment as 7 year property would make sense. Rich It's never 7 year property, even if practitioners are using that shorter life incorrectly. First, the definition of seven year property includes property with a class life of 10 years or more but less than 16 years (Code sec 168(e)(1)). This includes office furniture, equipment and fixtures that are not structural components. Further, Code sec 1.48-1(e)(2) actually defines the structural components of a building - (e) Definition of building and structural components. (1) Generally, buildings and structural components thereof do not qualify as section 38 property. See, however, section 48(a)(1)(E) and (g), and §1.48–11 (relating to investment credit for qualified rehabilitated building). The term “building” generally means any structure or edifice enclosing a space within its walls, and usually covered by a roof, the purpose of which is, for example, to provide shelter or housing, or to provide working, office, parking, display, or sales space. The term includes, for example, structures such as apartment houses, factory and office buildings, warehouses, barns, garages, railway or bus stations, and stores. Such term includes any such structure constructed by, or for, a lessee even if such structure must be removed, or ownership of such structure reverts to the lessor, at the termination of the lease. Such term does not include (i) a structure which is essentially an item of machinery or equipment, or (ii) a structure which houses property used as an integral part of an activity specified in section 48(a)(1) (B )(i) if the use of the structure is so closely related to the use of such property that the structure clearly can be expected to be replaced when the property it initially houses is replaced. Factors which indicate that a structure is closely related to the use of the property it houses include the fact that the structure is specifically designed to provide for the stress and other demands of such property and the fact that the structure could not be economically used for other purposes. Thus, the term “building” does not include such structures as oil and gas storage tanks, grain storage bins, silos, fractionating towers, blast furnaces, basic oxygen furnaces, coke ovens, brick kilns, and coal tipples. (2) The term “structural components” includes such parts of a building as walls, partitions, floors, and ceilings, as well as any permanent coverings therefor such as paneling or tiling; windows and doors; all components (whether in, on, or adjacent to the building) of a central air conditioning or heating system, including motors, compressors, pipes and ducts; plumbing and plumbing fixtures, such as sinks and bathtubs; electric wiring and lighting fixtures; chimneys; stairs, escalators, and elevators, including all components thereof; sprinkler systems; fire escapes; and other components relating to the operation or maintenance of a building. However, the term “structural components” does not include machinery the sole justification for the installation of which is the fact that such machinery is required to meet temperature or humidity requirements which are essential for the operation of other machinery or the processing of materials or foodstuffs. Machinery may meet the “sole justification” test provided by the preceding sentence even though it incidentally provides for the comfort of employees, or serves, to an insubstantial degree, areas where such temperature or humidity requirements are not essential. For example, an air conditioning and humidification system installed in a textile plant in order to maintain the temperature or humidity within a narrow optimum range which is critical in processing particular types of yarn or cloth is not included within the term “structural components”. For special rules with respect to an elevator or escalator, the construction, reconstruction, or erection of which is completed by the taxpayer after June 30, 1963, or which is acquired after June 30, 1963, and the original use of which commences with the taxpayer and commences after such date, see section 48(a)(1)© and paragraph (m) of this section. 1 Quote Link to comment Share on other sites More sharing options...
michaelmars Posted May 14, 2014 Report Share Posted May 14, 2014 DEPENDS if its a separate unit or the whole house a/c. a window unit for example is 7 year but cac system is 39 or 27.5 Quote Link to comment Share on other sites More sharing options...
jklcpa Posted May 14, 2014 Author Report Share Posted May 14, 2014 In my case that I asked about, it is a central air unit for the whole house. Quote Link to comment Share on other sites More sharing options...
Christian Posted May 18, 2014 Report Share Posted May 18, 2014 Egad ! I may at some point have assigned 7 year status to a structural component. Quote Link to comment Share on other sites More sharing options...
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