A/c unit on rental house

[oceanlovin'ea]

Does a new A/C unit installed at a rental house still have to be depreciated over the same time period that the rental house is depreciated? The wording is a little confusing in TTB page 7-6 confused me a little bit ( actually a big bit)
If they are separate components, does that change the depreciation time period?

Linda, EA

[DonB]

Great topic for discussion-- My take is you can elect to deduct the lower of 2% of the buildings unadjusted basis, or $10,000, of materials and supplies and improvements. An election statement and details of what is being deducted under this method is required. The remaining improvement cost, if any (AC unit in this case) would be depreciated over 27.5 years. I don't think the depreciation method is determined by the original method for the building.

[Kram BergGold]

No

You only get to use the safe harbor if your total repair and improvment expense is below the threshoold.
If you don't qualify for the safe harbor then the central AC is depreciated over the same life as the building. However, maybe if the building already had forced hot air you could argue that the AC unit was like a dishwasher or refrigerator and depreciate over 5 or 7 years.

[TXEA]

Have been researching a similar question for a commercial property. Of issue here is that the Final Repair Regs (TD 9636) allow for the small taxpayer safe harbor. This is one of the provisions that can be elected for 2013 and a taxpayer may be eligible to file an amended return for 2012 to claim the safe harbor.

Requirements are detailed in TTB 7-6. In the intro to the repair regs, TTB 7-6, the editors reference that some provisions are available to taxpayers for 2012 or 2013; however, they do not identify the provisions that are eligible to be adopted for 2012 - 2013. This would have been very helpful.

Here is what I have determined based on my research. The Small Taxpayer safe harbor is an election eligible for 2013 if the taxpayer meets the requirements (TTB 7-6). A written accounting policy does not seem to be required for this particular election. A taxpayer has to make the election every year they use the safe harbor and it may not be revoked.

So, if your client is a qualifying small taxpayer and owns an eligible building (probably does) and the $10,000 / 2% rule met (all three defined in TTB 7-6 and 7-7) then you can expenses the AC as repairs and maintenance .

Of interest to some, since TTB does not tell us, the De Minimis Safe Harbor appears to be available for 2012 and 2013 if the taxpayer had written accounting procedures in place at the beginning of 2012 or 2013 that meets the requirements. Most of our clients developed the written accounting procedures for 2014 and thus 2014 will be the first time De Minimis Safe harbor will be used.

Finally, it appears that the elections for the De Minimis Safe Harbor or the Small Taxpayer Safe Harbor (Per - Building) may not be done on Form 3115 and do not require Form 3115 - Change in Accounting Method.

Would welcome other thoughts - these regs will take some time to master.

[Steve Stang]

Does this apply to residential rental - even one that is partially owner occupied?

Have been researching a similar question for a commercial property. Of issue here is that the Final Repair Regs (TD 9636) allow for the small taxpayer safe harbor. This is one of the provisions that can be elected for 2013 and a taxpayer may be eligible to file an amended return for 2012 to claim the safe harbor.

Requirements are detailed in TTB 7-6. In the intro to the repair regs, TTB 7-6, the editors reference that some provisions are available to taxpayers for 2012 or 2013; however, they do not identify the provisions that are eligible to be adopted for 2012 - 2013. This would have been very helpful.

Here is what I have determined based on my research. The Small Taxpayer safe harbor is an election eligible for 2013 if the taxpayer meets the requirements (TTB 7-6). A written accounting policy does not seem to be required for this particular election. A taxpayer has to make the election every year they use the safe harbor and it may not be revoked.

So, if your client is a qualifying small taxpayer and owns an eligible building (probably does) and the $10,000 / 2% rule met (all three defined in TTB 7-6 and 7-7) then you can expenses the AC as repairs and maintenance .

Of interest to some, since TTB does not tell us, the De Minimis Safe Harbor appears to be available for 2012 and 2013 if the taxpayer had written accounting procedures in place at the beginning of 2012 or 2013 that meets the requirements. Most of our clients developed the written accounting procedures for 2014 and thus 2014 will be the first time De Minimis Safe harbor will be used.

Finally, it appears that the elections for the De Minimis Safe Harbor or the Small Taxpayer Safe Harbor (Per - Building) may not be done on Form 3115 and do not require Form 3115 - Change in Accounting Method.

Would welcome other thoughts - these regs will take some time to master.

So, am I correct in interpreting that this reg may be applied to owners of owner-occupied rental properties (taxpayer occupies one of three units) for an improvement to a rental unit?

[Gretel]

Of interest to some, since TTB does not tell us, the De Minimis Safe Harbor appears to be available for 2012 and 2013 if the taxpayer had written accounting procedures in place at the beginning of 2012 or 2013 that meets the requirements. Most of our clients developed the written accounting procedures for 2014 and thus 2014 will be the first time De Minimis Safe harbor will be used.

Finally, it appears that the elections for the De Minimis Safe Harbor or the Small Taxpayer Safe Harbor (Per - Building) may not be done on Form 3115 and do not require Form 3115 - Change in Accounting Method.

Would welcome other thoughts - these regs will take some time to master.

I agree, it will take some time and guidance.

In the issue of using the final regulations for 2013, it is my understanding that they cannot be used for 2013, rather you have to go by the temporary regulations issued earlier. They are somewhat different from the final regulations, so someone would need to dig in for their special situation. I do not have any cite but did some research around the first of the year since I have a client with multiply properties effected. I decided right there and then that I will do the utmost possible for 2014 but will not dig into earlier years.

[Burke]

And from a more recent post, the write-off is taken as "other expense," not on Form 4562 even though this appears to be an allowance under Section 179(d)? This means the normal limitations do not apply?

[TXEA]

The sources below are about as clear as a mud, but I think they imply the per-building safe harbor is eligible for 2013. My mind is a mess with these repair regs.

The AICPA summary seems to indicate the per-building safe harbor is available in 2013 as well. They will let you file an amended return if needed to claim the election.


When per-building safe harbor for small taxpayers applies. The Reg. § 1.263(a)-3(h) per-building safe harbor for small taxpayers applies to amounts paid in tax years beginning on or after January 1, 2014, but a taxpayer may choose to apply the Reg. § 1.263(a)-3(h) per-building safe harbor to amounts paid in tax years beginning or or after January 1, 2012. For a transition rule for 2012 or 2013 returns, see general effective date, below.

General effective/applicability dates. The final regulations generally apply to tax years beginning on or after January1, 2014. However, certain provisions only apply to amounts paid or incurred in tax years beginning on or after January 1, 2014. For example, the de minimis safe harbor election under Reg. § 1.263(a)-1(f) only applies to amounts paid or incurred for tangible property after January1, 2014, for tax years beginning on or after Jan 1, 2014.
Retroactive application of final regulations to 2012. If he chooses, a taxpayer may generally apply the final regulations to tax years beginning on or after January 1, 2012. Under this alternative, certain provisions of the final regulations only apply to amounts paid or incurred in tax years beginning on or after January 1, 2012. For example, the de minimis safe harbor election only applies to amounts paid or incurred for tangible property after January 1, 2012, for tax years beginning on or after January 1, 2012. Transition relief applies for taxpayers that did not make certain elections (e.g., for example, the election to apply the de minimis safe harbor or the election to apply the safe harbor for small taxpayers) on their timely filed original return for their 2012 or 2013 tax year (the applicable tax year). Thus, for tax years beginning on or after January 1, 2012, and ending on or before Sept. 19, 2013, these taxpayers can make these elections by filing an amended return (including any applicable statements) for the applicable tax year on or before 180 days from the due date including extensions of the taxpayer's return for the applicable tax year, notwithstanding that the taxpayer may not have extended the due date.

[taxea]

I didn't see in the original post that this is central a/c. The type of unit is what tells one how to depreciate it.