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In an earlier post, one of our members stated that he/she would take the furnace replacement as a "repair" "in light of the recent tax court opinion regarding roof replacement."

Would you go into more detail regarding this decision?

I started depreciation of my central heat/AC replacement purchased in January, 2004, for my rental home in FL.

Donna
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In an earlier post, one of our members stated that he/she would take the furnace replacement as a "repair" "in light of the recent tax court opinion regarding roof replacement."

Would you go into more detail regarding this decision?

I started depreciation of my central heat/AC replacement purchased in January, 2004, for my rental home in FL.


See, for example, TC Summary Opinion 2002-117. Taxpayer put a new roof on a rental property and deducted it in full as an ordinary and necessary repair. The IRS claimed it was a capital improvement and should be depreciated. The Tax Court agreed with the taxpayer that the replacement roof was necessary to keep the house in operating condition and didn't add to the value of the house -- hence current deduction.

Unfortunately, TC Summary Opinions are not precedent setting -- that is, the IRS doesn't have to follow the decision in other cases. However, this decision did cite an older case, Oberman Manufacturing Co. v. Commissioner, 47 T.C. 471 (1967), which was not a summary opinion.

There have been other cases with similar outcomes. One question that you will have to determine for yourself is whether your replacement system simply replaces the prior system or is an improvement. For instance, if the new system is more energy efficient or different heating/cooling capacity you might have difficulty supporting the "repair" position. This is an area that should be reviewed with a tax professional who will consider all of the specifics of your situation before providing advice.

Ira
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The heating/ac system replaced a very old system. The new system is entirely different from the old, as well as being more energy efficient. We replaced everything, except the ducts.

Donna
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Look, it's real simple. You would have a hard time renting the house as a NON HEATED home. Since you replaced the heating system, it NOT an improvement, it is a CAPITAL EXPENDITURE and needs to be added to the basis of the home; i.e 27.5 years depreciation. I believe the IRS is correct in that a roof is NOT an expense for the current year. It shopuld be depreciated over the normal 27.5 years.

Come on, a house without a roof? It's not a house. It's a coupla walls.

DO NOT get caught up in trying to shift as much as you can to current EXPENSES and shorter term depreciation schedules.

Be consistant, and reasonable.

cat

(BTW, I do not work for the IRS, I do vote and think the tax code is farcical and confusiing - to say the least!!)
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Look, it's real simple. You would have a hard time renting the house as a NON HEATED home. Since you replaced the heating system, it NOT an improvement, it is a CAPITAL EXPENDITURE and needs to be added to the basis of the home; i.e 27.5 years depreciation. I believe the IRS is correct in that a roof is NOT an expense for the current year. It shopuld be depreciated over the normal 27.5 years.

Yup, it's simple. Too bad you have it 180 degrees backwards. If it isn't an improvement, it isn't a capital expenditure, it's a repair.

You may believe the the IRS is correct that a roof is not an expense. Fortunately for savvy taxpayers, the US Tax Court disagrees.

Ira
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