Your Life

Posts: 1
Registered: ‎03-03-2014

Rental Property Improvements and Depreciation

I had the air conditioning at my rental property replaced with a new unit in May 2013.  I understand this is an improvement and needs to be depreciated.


(1)  What is the recovery period and depreciation method that I should use in the H&R Block Premium software?  There are different property types listed in the H&R Block Premium Software - but it's unclear to me how I should categorize Air Conditioning units.


Also - looking at the IRS publication - there is an option to depreciate with the same recovery period as that of the rental properties to which the improvements are made.  But I don't see this option in the software


(2)  Should I add the depreciation in the Income / Rentals and Royalties / Rental Depreciation area?


(3)  Does this qualify for bonus depreciation?


(4)  In the Deductions area - there is a section called "Investment Activity Depreciation".  What property should be added here.  When I saw this section - I got confused because I wasn't sure if I needed to add the Air Conditioning depreciation here.


Thanks for the assistance

Valued Pioneer
Posts: 4
Registered: ‎03-03-2014

Re: Rental Property Improvements and Depreciation

The TaxCut software is very poor in giving explanations for things that people would obviously have questions about as they go through the checklists/entry pages. I'm not much help and I always get confused as to whether a replaced component of a property is a repair or an improvement. The only question I have a definite answer to is I think if it were an improvement, an AC would be considered as "residential appliance."


For the rest of your questions, I think the software will choose your depreciation period and method automatically. I believe it is 5 years and 200% depreciation for this category. I couldn't figure out what qualified for bonus depreciation or what it's for, but if you added the improvement for the current tax filing year and you chose "no," TaxCut will say you're supposed to give the IRS an explanation why you picked "no." So I picked "yes." I think TaxCut will take into account the bonus for this first year for all the subsequent years. Or at least I thought it did and I didn't have to make any new entries about it. I also didn't know whether to reenter depreciating items into the deductions section. It doesnt make sense to list things twice but the Q/A on the help tab says to do it. I take the standard deduction every year so I ignored it. Sorry if I wasn't much help. Publication 946 has more info on depreciation. It's really long and sometimes confusing. I hate how publications separate their topics and subtopics, can't tell whether a paragraph applies to the section you're trying to read. I hope someone with more knowledge can give you more concrete answers.

Posts: 1
Registered: ‎10-04-2014

Re: Rental Property Improvements and Depreciation

I don't think the other advice given is correct. Air Conditioning is not an appliance unless maybe it's a window unit. If you replaced a central system that is attached to the building it's considered part of the structure and should be depreciated over 27.5 years for Residentail. I think you should use Residental Rental and put "0" in for land value on interview.

1. 27.5 years

2. yes

3. yes

4. no.... otherwise you will be taking two deductions. Your rental goes under Rental and Royalty Income