Is a $6,000 HVAC unit installed in a residential rental property eligible for Section 179 expensing?
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To determine if a $6,000 HVAC unit installed in a residential rental property is eligible for Section 179 expensing in 2025, we must analyze the requirements and limitations of Section 179, the definition of eligible property, and the specific treatment of HVAC units and residential rental property.
1. Section 179: General Requirements
Section 179 allows a taxpayer to elect to expense the cost of certain qualifying property, rather than depreciate it over time. The main requirements are:
- The property must be "section 179 property," which includes tangible personal property and certain qualified real property, acquired by purchase for use in the active conduct of a trade or business.
- The property must not be acquired from a related party or by inheritance/gift.
- The deduction is subject to annual dollar limits and a business income limitation.
2. Section 179 Property: What Qualifies?
Section 179 property includes:
- Tangible personal property (to which section 168 applies) that is section 1245 property, such as machinery and equipment.
- Certain qualified real property, including:
- Qualified improvement property (QIP) as defined in section 168(e)(6).
- Improvements to nonresidential real property placed in service after the property was first placed in service, specifically including roofs, HVAC property, fire protection and alarm systems, and security systems.
3. HVAC Units and Section 179
- For tax years beginning after 2017, improvements to nonresidential real property, including HVAC property, are eligible for Section 179 expensing if they are placed in service after the date the nonresidential real property was first placed in service.
- However, the law specifically refers to "nonresidential real property" for these improvements.
4. Residential Rental Property vs. Nonresidential Real Property
- "Residential rental property" is defined as any building or structure if 80% or more of its gross rental income is from dwelling units.
- "Nonresidential real property" is section 1250 property that is not residential rental property or property with a class life of less than 27.5 years.
5. Section 179 and Residential Rental Property
- Section 179 expensing is generally not available for improvements to residential rental property, including HVAC units, because the provision for expensing improvements (such as HVAC) applies only to nonresidential real property.
- The IRS and Treasury Regulations, as well as IRS Publication 946, confirm that improvements to residential rental property (such as an HVAC unit) are not eligible for Section 179 expensing. Only improvements to nonresidential real property (e.g., office buildings, retail stores) are eligible.
6. Use in a Trade or Business
- Section 179 property must be used in the active conduct of a trade or business. Merely holding property for the production of income (such as rental property) does not qualify unless the taxpayer is actively engaged in the trade or business of renting real estate (not just passive investment).
- Even if the taxpayer is in the active trade or business of renting residential real estate, the limitation on improvements to nonresidential real property still applies.
7. Conclusion
A $6,000 HVAC unit installed in a residential rental property is not eligible for Section 179 expensing. Section 179 expensing for HVAC units is limited to improvements to nonresidential real property. Residential rental property does not qualify as nonresidential real property, and thus, improvements (including HVAC units) to such property are not eligible for Section 179 expensing. The cost of the HVAC unit must be recovered through depreciation under MACRS, typically over 27.5 years using the straight-line method.
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