How should the cost of a mini split HVAC system in a rental property be amortized for tax purposes if Section 179 is not allowed?
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 how the cost of a mini split HVAC system in a rental property should be amortized for tax purposes when Section 179 expensing is not allowed, you must analyze the classification of the asset, the applicable depreciation method, and the recovery period under the Modified Accelerated Cost Recovery System (MACRS).
1. Classification of the Mini Split HVAC System
HVAC systems in rental property are generally considered part of the building’s structural components. Under the Internal Revenue Code and supporting IRS guidance, HVAC systems (including mini split systems) are classified as part of the building for depreciation purposes, unless they are separate units installed solely to meet temperature or humidity requirements essential for the operation of other machinery (the "sole justification" test), which is not typical in residential rental property.
- In residential rental property, HVAC systems are not considered tangible personal property (§ 1245 property), but rather are structural components of the building (§ 1250 property).
- Therefore, a mini split HVAC system installed in a rental house or apartment is depreciated as part of the building, not as a separate 5- or 7-year asset.
2. Applicable Depreciation Method and Recovery Period
a. Depreciation System
- MACRS General Depreciation System (GDS) is used unless you are required or elect to use the Alternative Depreciation System (ADS).
b. Recovery Period
- Residential rental property (including structural components like HVAC) is depreciated over 27.5 years under GDS.
- If you are required to use ADS (for example, if the property is used predominantly outside the U.S. or is tax-exempt use property), the recovery period is 30 years for residential rental property placed in service after December 31, 2017.
c. Depreciation Method
- The straight line method is required for residential rental property and its structural components under both GDS and ADS.
d. Convention
- The mid-month convention applies to residential rental property and its structural components, meaning depreciation begins as if the property (or improvement) was placed in service at the midpoint of the month.
3. Treatment of Improvements
If the mini split HVAC system is an improvement or addition to an existing rental property, it is treated as a separate asset for depreciation purposes. The recovery period and method are the same as if the improvement were placed in service at the same time as the original property.
- For a residential rental building, the HVAC improvement is depreciated over 27.5 years (GDS) using straight line and the mid-month convention.
- The depreciable basis is the cost of the mini split system (including installation), multiplied by the percentage of the property used for rental (if not 100%).
4. Section 179 Not Allowed
Section 179 expensing is not allowed for property used in residential rental activities unless the property qualifies as tangible personal property, which HVAC systems in rental property do not.
5. Example Calculation
Suppose you install a mini split HVAC system in a rental house in June 2025 at a cost of $6,000. The system is used 100% for the rental activity.
- Depreciable basis: $6,000
- Recovery period: 27.5 years (GDS)
- Method: Straight line
- Convention: Mid-month
For the first year, you would use the IRS MACRS table for 27.5-year property and the mid-month convention to determine the percentage to apply to the $6,000 basis.
6. Special Note: If the HVAC System Is Not a Structural Component
If, in a rare case, the mini split system is not a structural component (for example, it is a portable unit not permanently installed), it might be considered tangible personal property and eligible for a 5- or 7-year recovery period. However, most mini split systems are permanently installed and thus are structural components.
Summary: The cost of a mini split HVAC system in a rental property, if Section 179 is not allowed, should be depreciated as a structural component of the residential rental property over 27.5 years using the straight line method and the mid-month convention under MACRS GDS. If you are required to use ADS, the recovery period is 30 years. The cost is not eligible for Section 179 expensing in a residential rental context.
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."
