Rental Depreciation & 179 Expense

[Terry D EA]

 I am sure this topic has been tossed around numerous times. Client owns three residential rental properties. Each property is a single family residence. They replaced the HVAC (Central Air) unit in one property for $4200.00. I am reading conflicting articles regarding the HVAC unit qualifying for 179 deduction beginning in 2019. I am fully aware the HVAC unit is classified as an improvement/betterment and is capitalized for 27.5 years. I have looked at the de minimis safe harbor, small business safe harbor and none of these appear to apply for one reason or other. To give some background, the property the unit was installed at, has an adjusted cost basis of 59K which the cost of the replace exceeds the 2% requirement. Also, because the client does not have an AFS, the 2500 de minimis safe harbor cant' be used. The only thing I have found regarding HVAC units is the 179 deduction qualifies for HVAC, roofs; etc for non-residential real property. This same language was in the 2019-08 Revenue Procedure that outlines the amendments regarding deducting expenses as a result of the tax cuts and job act:

"The Section 179 deduction applies to tangible personal property such as machinery and equipment purchased for use in a trade or business, and if the taxpayer elects, qualified real property. The TCJA amended the definition of qualified real property to mean qualified improvement property and some improvements to nonresidential real property, such as roofs; heating, ventilation and air-conditioning property; fire protection and alarm systems; and security systems. Revenue Procedure 2019-08 explains how taxpayers can elect to treat qualified real property as Section 179 property."

So, am I correct that the only option this taxpayer has is to depreciate the HAVC unit for the 27.5 years and that's it? 

[Possi]

I'm waiting to see what everyone else says because they are much smarter than I am. I always go 27.5 on HVAC and would not have even entertained the thought of anything else. You make me pause and study a little deeper everytime you ask a question *I think* I already know the answer to! LOL 

So, I say 27.5 and that's it, like you said, but wait... I'm sure there's more! 

 

[Lion EA]

This is all from memory, so do your own research, but if you're trying to use less than 27.5, look into the following:

Use the UNadjusted cost of the rental house to see if you can use other than 27.5.

AFS are needed for $5,000, but any client can use $2,500 if he elects. Is the invoice detailed, does it list any/all line items at $2,500 or less?

TCJA was modified by The CARES Act to put QIP back to 15 years retroactive to 1/1/2018.

How's his income? Is it to his advantage to accelerate depreciation or to spread it out?

[Terry D EA]

Lion, the invoice is one line for $4200.00. I 've also read where you can't separate the installation costs from the price of the unit to take the  2500 de minimis safe harbor. Not really looking for anything less just trying to save tax dollars. The client is actually ok with the 27.5 years and claims he understood completely. They did get a small refund this year and will need the depreciation next year, kid turning 17 and spouse increase in income. So for tax planning purposes it is better not accelerate.  Of course I determined this after I posted above. 

Possi, I agree totally, 27.5 years is it. The articles I read I assume they left off the part regarding non-residential rental property.