Is the cost of a mini split HVAC unit in a residential rental property deductible under Section 179?
Ask Blue J any tax question, then go deeper. Follow up, add client-specific context, and explore the sources behind every answer with Blue J’s generative AI solution for tax research.
To determine whether the cost of a mini split HVAC unit in a residential rental property is deductible under Section 179, we must analyze the requirements and limitations of Section 179, the classification of HVAC property, and the specific rules for residential rental property.
1. Section 179 Deduction—General Requirements
Section 179 allows a taxpayer to elect to expense the cost of certain qualifying property in the year it is placed in service, rather than recovering the cost through depreciation over several years. The main requirements are:
- The property must be "section 179 property," which includes tangible property to which section 168 applies, and which is section 1245 property (generally, tangible personal property), or, at the election of the taxpayer, "qualified real property" as defined in Section 179(e).
- The property must be acquired by purchase for use in the active conduct of a trade or business.
- The deduction is subject to annual dollar limits and a business income limitation.
2. Qualified Real Property and HVAC
Section 179(e) defines "qualified real property" to include:
- Qualified improvement property (QIP) as described in section 168(e)(6), and
- Certain improvements to nonresidential real property placed in service after the date such property was first placed in service, including:
- Roofs,
- Heating, ventilation, and air-conditioning property (HVAC),
- Fire protection and alarm systems,
- Security systems.
However, this definition applies only to improvements to nonresidential real property. Residential rental property is not nonresidential real property; it is defined separately under section 168(e)(2)(A) as property where 80% or more of the gross rental income is from dwelling units.
3. Section 179 and Residential Rental Property
Section 179 property generally includes tangible personal property (section 1245 property) used in the active conduct of a trade or business. However, property used in residential rental activities is generally considered to be held for the production of income, not for use in the active conduct of a trade or business, unless the taxpayer's rental activity rises to the level of a trade or business (which is a facts-and-circumstances determination).
Even if the rental activity is a trade or business, the HVAC unit must be "section 179 property." For HVAC, this is only the case if it is a qualifying improvement to nonresidential real property. The law is explicit that improvements to residential rental property, including HVAC systems, are not eligible for Section 179 expensing as "qualified real property".
4. Is a Mini Split HVAC Unit Tangible Personal Property?
A mini split HVAC unit, when installed in a building, is generally considered a structural component of the building and thus is not tangible personal property (section 1245 property) for purposes of Section 179. The IRS and courts have consistently held that HVAC systems, including mini split units, are structural components and not eligible for Section 179 expensing unless they are improvements to nonresidential real property.
5. Cost Segregation and Section 179
Cost segregation studies may identify certain components of a building as tangible personal property eligible for shorter depreciation, but HVAC systems (including mini splits) are specifically identified as structural components and are not reclassified as tangible personal property for Section 179 purposes in residential rental property.
6. Conclusion
The cost of a mini split HVAC unit installed in a residential rental property is not deductible under Section 179. Section 179 expensing for HVAC property is limited to improvements to nonresidential real property. In residential rental property, HVAC systems are considered structural components and do not qualify as section 179 property. The cost must be recovered through depreciation over 27.5 years under MACRS as part of the residential rental property.
If you have a unique fact pattern (such as the mini split being portable and not permanently installed), or if your rental activity is a trade or business and the unit is not a structural component, further analysis may be warranted, but in the vast majority of cases, the answer is as above.
Was this answer helpful?
What Blue J customers are saying
“We are excited to use Blue J to elevate the initial work product our team is able to produce."
"We’re incorporating Blue J to ensure our people are well-equipped with a research tool that delivers on both ease of use and quality of deliverable. It will save us a lot of time as a starting point, so we can focus our efforts on the analysis. Ultimately, it helps us get to the right answer, faster.”
"We’re incorporating Blue J to ensure our people are well-equipped with a research tool that delivers on both ease of use and quality of deliverable. It will save us a lot of time as a starting point, so we can focus our efforts on the analysis. Ultimately, it helps us get to the right answer, faster.”
"We had used Checkpoint for a long time but found it wasn’t particularly well-used in our practice."
"A lot of our practitioners would have to turn to Google to find what they were looking for, which of course isn’t ideal. Blue J is a real game-changer when it comes to this, since it combines the efficiency of Google with the authoritative tax materials our people really need to serve their clients best. At ELO, we pride ourselves on providing services that are focused on value for clients and exceeding their expectations. Adding Blue J to our toolbox will enable us to do just that, as we continue to evolve our service offerings to better serve our clients’ needs.”
"A lot of our practitioners would have to turn to Google to find what they were looking for, which of course isn’t ideal. Blue J is a real game-changer when it comes to this, since it combines the efficiency of Google with the authoritative tax materials our people really need to serve their clients best. At ELO, we pride ourselves on providing services that are focused on value for clients and exceeding their expectations. Adding Blue J to our toolbox will enable us to do just that, as we continue to evolve our service offerings to better serve our clients’ needs.”
"We find this tool to be a game-changer for us and our clients.”
“We had the opportunity to pilot some other AI solutions in the market, and found that the improvement over traditional search was limited - except in Blue J’s case, where the efficiency gain over traditional research methods is significant."
“We had the opportunity to pilot some other AI solutions in the market, and found that the improvement over traditional search was limited - except in Blue J’s case, where the efficiency gain over traditional research methods is significant."
“Blue J is an exciting technology because it enables the practitioner to remain in the driver’s seat of the analysis."
"Thoughtful functions are included to encourage and facilitate deeper analysis, not to replace or reduce it. We’ll continue to find new and impactful ways to leverage the technology, which has benefited our clients and staff alike. At RSM we strive to be compelling to our clients and to be digital by embracing new technologies to fulfill that promise.”
"Thoughtful functions are included to encourage and facilitate deeper analysis, not to replace or reduce it. We’ll continue to find new and impactful ways to leverage the technology, which has benefited our clients and staff alike. At RSM we strive to be compelling to our clients and to be digital by embracing new technologies to fulfill that promise.”
"We wanted to have a tool that people were using at all staff levels."
"We wanted something that lived up on their third screen - something that would be available and helpful to them every day. What we've found is it's been easy to get people to get into the habit of using Blue J because it helps people. Blue J allows us to quickly respond to client questions in a way that they can understand it, which helps us deal with the volume of client questions that come in. We were up and running very quickly with Blue J - within 5 minutes, our staff understood how this will be helpful, and the rest of the training program is refining prompting skills and building use cases and best practices."
"We wanted something that lived up on their third screen - something that would be available and helpful to them every day. What we've found is it's been easy to get people to get into the habit of using Blue J because it helps people. Blue J allows us to quickly respond to client questions in a way that they can understand it, which helps us deal with the volume of client questions that come in. We were up and running very quickly with Blue J - within 5 minutes, our staff understood how this will be helpful, and the rest of the training program is refining prompting skills and building use cases and best practices."
