Under MACRS, what is the appropriate class life for a new air conditioning unit in residential rental property?
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Under the Modified Accelerated Cost Recovery System (MACRS), the appropriate class life and recovery period for a new air conditioning unit installed in residential rental property depends on how the unit is classified for tax purposes—specifically, whether it is considered a structural component of the building or a separate item of tangible personal property.
1. Central Air Conditioning Units (Structural Component)
Central air conditioning systems that are installed as part of the building’s heating, ventilation, and air conditioning (HVAC) system are considered structural components of the building. The IRS and Treasury Regulations define “structural components” to include items such as central air conditioning systems, as they are integral to the operation and maintenance of the building and are intended to remain in place permanently (see Treas. Reg. § 1.48-1(e)(2); see also IRS Publication 527 and 946).
For residential rental property, structural components are depreciated as part of the building under MACRS:
- Class Life: 27.5 years (General Depreciation System, GDS)
- Depreciation Method: Straight-line (SL)
- Convention: Mid-month
- Applicable Code Section: IRC § 168(c), § 168(e)(2)(A), § 168(b)(3), and § 168(d)(2)(B)
Source:Subsection 168(e)(2)(A): “The term ‘residential rental property’ means any building or structure if 80 percent or more of the gross rental income from such building or structure for the taxable year is rental income from dwelling units.”
Subsection 168(b)(3): “The applicable depreciation method shall be the straight line method in the case of... (A) Nonresidential real property. (B) Residential rental property.”
Subsection 168(c): “In the case of residential rental property, the applicable recovery period is 27.5 years.”
Subsection 168(d)(2)(B): “In the case of... residential rental property, the applicable convention is the mid-month convention.”
Practical Application:If you install a new central air conditioning system in a residential rental property, it is depreciated over 27.5 years using the straight-line method under MACRS.
2. Window or Portable Air Conditioning Units (Tangible Personal Property)
Window air conditioners or portable units, if not permanently installed and not considered part of the building’s structure, may be classified as tangible personal property. In this case, they are generally depreciated as 5-year property under MACRS.
- Class Life: 5 years (GDS)
- Depreciation Method: 200% declining balance (DB), switching to straight-line when advantageous
- Convention: Half-year (unless mid-quarter applies)
- Applicable Code Section: IRC § 168(e)(3)(B), § 168(b)(1), § 168(d)(1)
Source:Subsection 168(e)(3)(B): “The term ‘5-year property’ includes... any section 1245 property used in connection with research and experimentation... and any machinery or equipment... used in a farming business...”
Subsection 168(b)(1): “The applicable depreciation method is... the 200 percent declining balance method, switching to the straight line method...”
Subsection 168(d)(1): “The applicable convention is the half-year convention.”
Practical Application:If you install a window or portable air conditioning unit in a residential rental property and it is not a permanent fixture, it may be depreciated over 5 years using the 200% declining balance method under MACRS.
3. Cost Segregation and Classification
The IRS Cost Segregation Audit Techniques Guide and industry matrices confirm that central HVAC systems are structural components (27.5 years for residential rental property), while removable or non-permanent units may be classified as 5-year property.
4. Summary Table
5. Additional Notes
- The depreciable basis includes the cost of the unit, installation, and any related expenses.
- If the unit is replaced before being fully depreciated, the remaining basis may be written off as a loss.
- For mixed-use (e.g., home office), only the business-use portion is depreciable.
6. Conclusion
For most residential rental properties, a new central air conditioning unit is depreciated as a structural component of the building over 27.5 years under MACRS. If the unit is a window or portable type and not permanently installed, it may qualify for 5-year MACRS depreciation as tangible personal property. The correct classification depends on the nature of the installation and the unit’s integration with the building.
If you need to determine the correct class life for a specific type of air conditioning unit, please provide details about the unit and its installation.
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