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Old 01-05-2014, 05:57 PM
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Rental improvements only - how to fill out form 4562 for depreciation

I have a rental property (not for business, just as an investment) that I installed a new HVAC in 2013. I know this needs to be depreciated via form 4562. I am NOT depreciating the home at all, just the HVAC system.

What section do I fill out on Form 4562? I am confused as to where I should put the cost of the HVAC system and then how much I would depreciate in 2013 (cost divided by 27.5 years).

Any help would be great. Thanks!



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Old 01-06-2014, 12:47 PM
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Originally Posted by JackieGrant3014 View Post

What section do I fill out on Form 4562? I am confused as to where I should put the cost of the HVAC system and then how much I would depreciate in 2013 (cost divided by 27.5 years).

You may depreciate personal property in both residential and nonresidential rental real estate over estimated usable lives provided for under the Internal Revenue Code and administered by the IRS; the Internal Revenue Code establishes class lives, or a period of years over which certain property may be depreciated, or the period of time the cost of depreciable property is recoverable through income tax deductions by the taxpayer; the air conditioning unit is a improvement to the rental property and must be capitalized. The air conditioning units must be depreciate with the same recovery period as that of the rental properties to which the improvements are made. If you have 10 years left to depreciate the rental properties the air conditioning units will have the depreciate time of 10 years. You can read more about rental depreciation at www.irs.gov/pub/irs-pdf/p527.pdf on pages 3 and 11.
The IRS requires that taxpayers use Form 4562to report the amount of depreciation deduction for personal property used in rental activities. Form 4562 requires youto report the class life of the property, the month and year the property was placed in service, the convention period used for the property, the depreciation method and a computation of the amount of depreciation deduction claimed. Form 4562 must be attached to your individual income tax return, where the amount of the depreciation deduction is used to reduce income from rental real estate activities. In computing the amount of depreciation to be reported on Form 4562, the IRS requires that you use a mid-month convention date to determine the amount of depreciation during the first year and last year a class life property is in service. A mid-month convention date indicates that the property placed in service during a specific month is deemed to be in service as of the midpoint of the month, For example, an air condition put in service on December 30 for a tax year ending December 31 would be deemed to be in service for one-half a month under the mid-month convention rules.The IRS publishes extensive charts and worksheets that allow taxpayers to determine the deductible percentage of depreciation for any period knowing the in-service date and the class life of the property. Prior to computing any amounts of depreciation deduction, you are typically eligible to claim special, accelerated amounts of depreciation on personal property placed in service during a tax year. There are two types of these accelerated depreciation deductions -- known as bonus depreciation and Section 179 Depreciation. Air conditioning units are specifically excluded as ineligible for Section 179 Depreciation. Bonus depreciation, equal to 50 percent or 100 percent of the air conditioning unit’s value, may be claimed. The amount of deduction depends on the date in service and current tax rules. If the air conditioning unit qualifies for bonus depreciation, the appropriate 50 percent or 100 percent amount may deducted.UNLESS you use Special Depreciation Allowance and Other Depreciation, you need to report it on 4562 line 19 sec B.



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