For tax purposes is replacement of broken heat pump in a rental unit considered an expense or improvement?

Question

I have a condo on a golf course that I rent out mostly short term. The heat pump/AC broke down entirely in 2006. It was not repairable so I had to replace it with a new one for a cost of $4000. I cannot determine from the tax publications if this is a deductible repair/maintenance expense or an improvement that must be depreciated. Granted it is a big expense but it had to be done to keep the property in good operating condition, but then again it does prolong the useful life of the property but adds little to the value of the property (every residence must have a heat/AC system that works). An argument could be made that it meets either definition ("expense" or "improvement") in IRS Pub. 527. I don't care which is right. Since I do my own taxes so I just want to put it down correctly and don't want to be audited over it.
Someone who knows about the tax treatment of such things please answer. Thank you.

Answer 1

K Soze is pretty much on the mark with their response but the IRS rule say you should depreciate the cost over time.

They have been known to throw a flag for a lot less than $4,000 before.

K Soze said: it's really a judgement call. the conservative approach is to capitalize it and depreciate it over 7 years. the aggressive (but since the amount is small, not real aggressive) is to expense it.

i don't think the IRS will audit you for such a small amount.

Answer 2

Heat Pump Depreciation Life

Answer 3

Expense

Answer 4

If you had replaced a blower fan in the outside unit, it would be pretty easy to call it a repair and expense it. Replacing the entire unit would unquestionably be a capital expenditure and would need to be depreciated. That's how I handled the same situation.

Answer 5

Save your receipt. Last century, when I earned my accounting degree; there was something to the effect that if you bought a bigger, better, more expensive one (replacement item) it was an improvement, but if you replaced it with a similar item, it was a repair. Don't know how the current rules split it out. That is how and why tax accountants earn their money.

Answer 6

it's really a judgement call. the conservative approach is to capitalize it and depreciate it over 7 years. the aggressive (but since the amount is small, not real aggressive) is to expense it.

i don't think the IRS will audit you for such a small amount.

Answer 7

The replacement IS THE REPAIR. You didnt upgrade a working unit, you repaired a defective one by replacing it. I would deduct it for sure.
I replaced my hot water heater in my rental unit and wrote it off. i replaced it because the tenants were complaining that the hot water ran out too quick. never got audited.

Answer 8

expense

Answer 9

expense