Should I deduct or capitalize the cost to replace a water heater in my rental property? (details Below)

Question

Recently had a water heater die in my rental property and it had to be replaced with a new one.

Here are the specifics:

1. Old water heater that was in the unit when I bought it.
2. The property was occupied by tenants at the time it was replaced.
3. During the replacement I also had the plumber fix two safety issues the home inspector identified related to the water heater (install a power/water cutoff at unit).
4. The replacement and all the associated work in #3 totaled $1488

I'm fairly new at landlording and my Internet searches are turning up some conflicting advice. So the question is this....
Should the above described cost be expensed in the current year or depreciated/capitalized, and if the latter over what time period?

Answer 1

If you're repairing an existing appliance - its an expense.

If you're replacing an existing appliance with a new one - that's disposing of one capital asset and putting in service another.

You depreciate the new one and you dispose of the old one (if not fully depreciated - talk to your tax adviser how to handle the remaining value).

The additional costs of the fixes that are not related to the installation of the new appliance are regular maintenance expenses, so you have to get an itemized invoice from the plumber to know what to expense and what to capitalize.

Answer 2

Pub 527 my friend.

It gets depreciated. Table 1-1 on page 5.

Answer 3

You may be able to choose. As a small business, you can expense certain depreciable assets (section 179). But by choosing to depreciate the asset, you are also increasing the cost-basis of the property. Are you planning to sell the property in the next couple of years? Do you need a higher basis?

Section 179 - Election to expense certain depreciable business assets