Heat Pump dep

[TAXMAN]

Can I use a 10 year life on a replaced heat pump(old one blew up in this cold weather) since warranty only covers 10 years used in a residential rental. I did find a class life of 10 years in an article that said in essence since it was included in the energy rules for credits it was possible to have a class life of 5 years. what is your take on this. bty old one was 8 years old.

[michaelmars]

with the new regs, you can most likely expense it as a repair. 

[Lee B]

I disagree, I would capitalize the new unit and do a partial disposition on the old unit.

[Jack from Ohio]

27 1/2 years. 

[michaelmars]

you are repairing hvac back to original status so it would work. Look at the RABI rules.   and also the election for repairs that you expect to have to do more than once every 10 years.

[jklcpa]

Might this also fall under the dollar limit for safe harbor for small taxpayers with buildings? Do the total repairs exceed the lesser of $10K or 2% of unadjusted basis of the building?

[grmy2h]

The HVAC is a structural component of the building system. HVAC usually has  - 1. Heat Pump, 2. Indoor Air Handler Unit, 3. Duct Work. 4. T-stat

Heat Pump performs a critical function of HVAC system. It's a restoration to building system, so an Improvement to the Building. Structural components recovery period is 27.5 on residential rental property.

 

OP said "replaced" not repair. He replaced a major component.

 

IMO

[michaelmars]

ROUTINE MAINTENANCE SAFE HARBOR

KEY CHANGES

The routine maintenance safe harbor is expanded to include buildings.

Network assets are excluded from the safe harbor

 

 

The costs of performing certain routine maintenance activities on a unit of property, including a building structure or one of the enumerated building systems, are currently deductible under a routine maintenance safe harbor (Reg. §1.263(a)-3(i)).

This safe harbor is not elective.

Under the safe harbor, an amount paid is deductible if it is for ongoing activities that, as a result of the taxpayer’s use of the unit of property, the taxpayer expects to perform to keep the unit of property in its ordinarily efficient operating condition. In the case of a building, the building structure and each building system is treated as a separate unit of property (Reg. §1.263(a)-3(i)(1)(i) and (ii)).

 

The activities are routine only if, at the time the unit of property is placed in service by the taxpayer, the taxpayer reasonably expects to perform the activities more than once during the class life of the unit of property (that is, during the recovery period prescribed for the MACRS alternative depreciation system (ADS)). However, in the case of a building structure or building system, the taxpayer must expect to perform the activities more than once during the ten-year period beginning when the building structure or building system is placed in service by the taxpayer (Reg. §1.263(a)-3(i)(1)(i) and (ii)).

[Jack from Ohio]

Like I said, 27.5 years.  It is a component.  Claim unused depreciation of the old unit as expense.  Same as a Furnace.  Replacement is not repair or maintenance.

[grmy2h]

"However, in the case of a building structure or building system, the taxpayer must expect to perform the activities more than once during the ten-year period beginning when the building structure or building system is placed in service by the taxpayer (Reg. §1.263(a)-3(i)(1)(i) and (ii))."

 

 

You should not expect to replace a Heat Pump more than once in a 10 year period. The life expectancy is between 12 - 15 years with proper maintenance. 

[mrichman333]

My head is spinning

[Terry D EA]

I agree with replaced 27.5 years and repaired 10 years and would consider looking at the safe harbor rules as Judy pointed out.

[michaelmars]

well since the one being replace was only 8 years old you might be safe to assume the next one will last even less, especially since it most likely is coming from china.  I can only go by the original post, Guarantee is only for 10 years and the original is 8 years old.  Its a judgment call and can be argued many ways. But, in this case replacing one 8 years old gives me a good argument that this will occur again in less than 10 years.  The standard is Reasonably expect to replace within 10 years.

[Jack from Ohio]

well since the one being replace was only 8 years old you might be safe to assume the next one will last even less, especially since it most likely is coming from china.  I can only go my the original post, Warrantee is only for 10 years and the original is 8 years old.  Its a judgment call and can be argued many ways. But, in this case replacing one 8 years old gives me a good argument that this will occur again in less than 10 years.  The standard is Reasonable expect to replace within 10 years.

What would be the purpose of the warranty for 10 years then?  Items are typically designed to last LONGER than the warranty period.  I am not seeing any logical reason to consider the replacement of the A/C unit as repair.  This is the same argument about roofs.  The IRS has made it abundantly clear that roofs, HVAC, Plumbing and several other things are components.

 

27.5 years and if it dies after 13, claim the unused portion of depreciation as expense.

[TAXMAN]

I really didn't mean to stir up a pot but dang we got good ideas here don't you think. After all, that's what we do here.

[rfassett]

The guy that put in the heating system for my office building that I built 13 years ago undersized the heat pump.  When that one went bad, he replaced it with the same size unit.  When that one went bad I called someone else.  The new guy, so he says, put the correct size in.  My point, we are on our third heat pump in 13 years.  I would have a pretty good argument regarding expensing the darn things.  Oh year, the ones that failed made it through the warranty period and failed shorty thereafter.  The current new one is bigger and stronger and has a better warranty.  I think I am good now for a couple of years.  Knowing what I know about heat pumps - I say expense it as a repair.  You can use my case for an argument but I will have to charge you.  I have to find some way to recoup the cost of three heat pumps in thirteen years.