I Just purchased a new hvac unit for my rental condo, which cost me $2000. I know for tax reasons, this is an improvement, therefore i have to depreciate the cost over 27.5 years. However, when i’m doing my financials (income statement), do i show the full $2000 as an expense, or do i show the depreciation here as well? Thanks to any replies.
I would record it as an asset “on the books” and depreciate it monthly. But if this is not meaningful to you, then you should record it however works for you. You may be wanting more of a “cash basis” or cashflow-looking income statement. That’s not uncommon. As long as your tax guy gets it right and you let whoever sees your financials know that it’s not true accrual accounting, no prob.
your reports should be meaningful to you. that’s the only “right” answer.
Another way to look at is (the same as was said just different words)…Add the $2000 improvement to the cost basis of the rental unit(asset) and depreciate monthly.
IWINUWIN,
NO, NO, NO. The HVAC is a new asset and real1 needs to establish a new 27.5 year depreciation schedule that is separate and distinct from the depreciation schedule for the rental dwelling structure.
Over time, I expect that real1 will have several separate depreciable assets in his rental property, each with a separate cost recovery schedule. Appliances and carpeting are depreciated over 5 years, landscaping improvements are depreciated over 15 years, while the new HVAC, a new roof, and the original dwelling structure each have a 27.5 year recovery period.
Each new improvement is separate depreciable property and begins its own depreciation schedule when it is placed in service.
Refer to IRS Publication 946, How To Depreciate Property, for specific details.