Which MACRS recovery period applies to a new air conditioner added to residential rental property?
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For a new air conditioner added to residential rental property, the correct MACRS (Modified Accelerated Cost Recovery System) recovery period depends on how the air conditioner is classified for tax purposes. The classification is determined by whether the air conditioner is considered a structural component of the building (real property) or tangible personal property.
1. Central Air Conditioning Systems (Structural Component)
If the new air conditioner is a central air conditioning system that is integrated into the building (e.g., central HVAC), it is considered a structural component of the residential rental property. Under the Internal Revenue Code and IRS guidance:
- Classification: Structural component of residential rental property (real property).
- MACRS Recovery Period: 27.5 years under the General Depreciation System (GDS).
- Depreciation Method: Straight-line method with the mid-month convention.
- "Residential rental property" is defined as any building or structure where 80% or more of the gross rental income is from dwelling units, and structural components (including central air conditioning) are depreciated over 27.5 years under GDS;;;.
2. Window or Portable Air Conditioning Units (Tangible Personal Property)
If the air conditioner is a window unit or a portable unit that is not permanently affixed and can be removed without damage, it may be classified as tangible personal property:
- Classification: Tangible personal property (appliance).
- MACRS Recovery Period: 5 years under GDS.
- Depreciation Method: 200% declining balance method, switching to straight-line when advantageous, using the half-year or mid-quarter convention as applicable.
- Reference: Appliances such as air conditioners that are not structural components are 5-year property under MACRS;;.
3. Cost Segregation and Industry Guidance
IRS cost segregation guidance and industry matrices confirm:- Central air conditioning systems are treated as part of the building and depreciated over 27.5 years for residential rental property.- Only separate HVAC units that meet the "sole justification" test (i.e., installed solely to meet temperature/humidity requirements essential for the operation of other machinery) may be classified as tangible personal property, which is rare in residential rental settings.
4. Section 179 and Bonus Depreciation
- Section 179 expensing and bonus depreciation are generally not available for property used in residential rental activities, except for certain tangible personal property (e.g., window units), but not for structural components like central air conditioning systems;.
Summary Table:
Conclusion
For most residential rental properties, a new central air conditioner is depreciated over 27.5 years as part of the building under MACRS GDS. If the unit is a removable window or portable air conditioner, it may qualify for a 5-year recovery period as tangible personal property;;;.
If you have a specific type of air conditioner in mind (central vs. window/portable), please clarify for a more tailored answer.
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