Can this be considered a legitimate business expense?

Question

I purchased a new air conditioner for my primary residence in the summer of this year.  In the fall of this year I purchased a new primary residence and began to rent out my old primary residence.  Can I count the purchase of the air conditioner as a business expense even though at the time I was not renting the property?  I obviously needed to fix the air conditioner prior to renting the property because central air would be considered a 'must-have' at the price point I was renting at.  Any thoughts/comments would be greatly appreciated.

Steven Hamilton II · Answer

@Jim Herbst ,

Bill Gulley  is correct. You may qualify for the Nonbusiness energy credit on Form 5695. If so you must reduce your basis by that credit amount.

Jim Herbst · Answer

Thanks for all your insight and wisdom everyone!

Bill Gulley · Answer

Only a Canadian would think of double dipping in the US Tax Code, LOL.

If you took credits when it was purchased as a homeowner you'll need to adjust your value at conversion I'd think. @Steven Hamilton II ?

Pat L. · Answer

Don't forget to take the Energy Star credit on your tax return.

That may be a bigger bang for the buck than the allowable depreciation or hoping to get away with a deduction :)

Steven Hamilton II · Answer

@Jim Herbst ,

@Stephen Underhill ,

@Aaron Junck ,

@Bryan H,

As @Wayne Brooks  said and I will confirm:

It is an addition to your actual basis; however, as of the date of conversion to a rental it is recomputed as the lower of your actual basis or Fair Market Value.

As long as you lived there at least two full years. You can consider utilizing the Home Sale Exclusion(home sale exclusion) within the next three years.  You can exclude your gain; however, you will run into an issue of having to deal with some recapture of depreciation.

Wayne Brooks · Answer

It gets added to your basis, since it was not available for rent yet, and depreciated.  Consider the effects of foregoing your capital gains exclusion, if sell more than 3 years from now.

Bryan H. · Answer

I want to answer and see if I am right. I'm no CPA. Anyway, I believe it will go towards your costs basis when determining depreciation. Getting it fixed after it's a rental will be an expense.

Aaron Junck · Answer

I dont believe you are able to write it off as an expense. As in write off the whole cost off in one year. This is a bigger ticket item and therefore I believe it has to be depreciated out over the life expectancy of the AC..

Hopefully @Steven Hamilton II will chime in and clarify.

Stephen Underhill · Answer

well in my personal, not professional opinion, i would think that such a purchase could be considered legitimate since you were planning on renting the property in the near future, making it an investment property. I feel itd be similar to if you had bought a rehab and held it for 3 months and had bought the unit during that time... i do know that could could still claim the depreciation prorated for the year and subsequent years.

Can this be considered a legitimate business expense?

Most Popular Reply