Discussion:Asset Class; Bonus Deprec. ; Res Rental AC

I would never sign a return if I didn't think I had a reasonable expectation of my position being substantiated during an audit. The law specifically states that HVAC systems are "structural components" and are depreciated over the same lifespan as the building.

But wait some more. If it's described as office machinery, instead, it'll be 5-year property, won't it?

Or you can just go all the way, call it a *horse* and - if it's the right age - it'll get written off over only three years!

At least (I think) this lady can take the 50% bonus depreciation on a new refrigerator she bought for her rental. That is listed as "F Rental Furnishing 5/9 year". That refrigerator will probably last as long as the central air unit - as they say, "go figure". As for calling it a "repair", even I have trouble calling replacement of the whole unit as a "repair". If the compressor alone were replaced that might be possible. The irony is that replacing the compressor would cost almost as much as replacing the whole unit.

"Structural components: Parts that together form an entire structure, such as a building. The term includes those parts of a building such as walls, partitions, floors, and ceilings, as well as any permanent coverings such as paneling or tiling, windows and doors, and all components of a central air conditioning or heating system including motors, compressors, pipes and ducts. It also includes plumbing fixtures such as sinks, bathtubs, electrical wiring and lighting fixtures, and other parts that form the structure."

The cost of incidental repairs which neither materially add to the value of the property nor appreciably prolong its life, but keep it in an ordinarily efficient operating condition, may be deducted as an expense, provided the cost of acquisition or production or the gain or loss basis of the taxpayer's plant, equipment, or other property, as the case may be, is not increased by the amount of such expenditures. Repairs in the nature of replacements, to the extent that they arrest deterioration and appreciably prolong the life of the property, shall either be capitalized and depreciated in accordance with section 167 or charged against the depreciation reserve if such an account is kept.

The new proposed regulations note that a unit of property is the entire building, "(ii) BUILDINGS AND STRUCTURAL COMPONENTS. In the case of a building (as defined in Sec. 1.48-1(e)(1)), the building and its structural components (as defined in Sec. 1.48-1(e)(2)) are a single unit of property.,"

thus, the repair of a central air conditioning component fails to raise to a sufficient level that its repair by itself does not prolong the useful life of the building. The repair returns the building to the condition of normal operations.

The replacement of the air conditioning unit maintains the value of the building, it does not increase the value of the building, but prevents the value from deteriorating because of the lack of repair.

Now having said my piece about repair I leave you.

Rafa lost in three sets.

The new temporary regulations, (which have the full force and effect of final regulations), say that you have to consider HVAC as the property unit, even though you generally consider the building as the property unit when talking about structural building components. So the OP will probably end up with a capitalized new central A/C depreciated over 27.5 years.

You will never find a list of asset lives for specific items.You start with the enumerated categories in section 168, like racehorses or qualified leasehold improvements. If you don't find your asset type there, you then look at Rev Proc 87-56 to see which asset class applies. However, you also must simultaneously look under the old ITC regulations, where you will find a list of assets that are structural components of buildings if they relate to the operation or maintenance of the building. And an item might be a listed structural component but still qualify as tangible personal property if it is an accessory to the business, if it is special or decorative, if it is not inherently permanent, if it is HVAC whose sole justification is to maintain temperature or humidity levels for other machinery to operate, or if it is a special electrical, gas, or plumbing line that is primarily used with and necessary for the use of a particular piece of equipment. But the tests don't stand alone: decorative marble wall tile that is inherently permanent will be structural.

What the IRS promulgates.

link is dead - not sure what page it had been intended to go to; see the ATG link below

http://www.irs.gov/Businesses/Cost-Segregation-ATG---Chapter-6.4-Relevant-Court-Cases