Tax question on Water Heater replacement

[Chris Masons]

I have a tax question on water heater replacement. I Know it should be a capitalized expense written off over X amount of years. Last year I replaced a water heater and in doing my taxes using Turbo Tax there was something that said I have the one time option of writing off the entire expense in that tax year. I said yes to the option and the entire cost was written off.

I just replaced another water heater in another property and was wondering if I will have that option again or mainly I want to know whty I Was given the option to deduct this fully in the given tax year as opposed to it being a capitalized expense and written off over I believe 7 years is it?

thx in advance,
Chris

[Danny Ng]

If you first purchased the water heater in 2012, you would also need to factor the mid-month convention calculation. For residential rental property, and similar structural components, you'll be using the mid-month convention.

Example: You purchased and serviced the water heater for use on July 4, 2012. For the mid-month convention, 07/15/12 is the mid-month. 07/15/12 to 12/31/12 = 5.5 months. 5.5/12 months = 0.4583 depreciated from July - December 2012. Then you factor into the depreciable life of the asset over 27.5 years; thus, 0.4583/27.5 = 1.67% is the % depreciated in 2012. Take 1.67% x cost basis of the water heater = your water heater depreciation in 2012. Going forward, your depreciation would be 3.636% until the total cost of your water heater is recovered (12/12 = 1/27.5 = 3.636%).

I'm not a tax accountant, but it sure was fun reading this kind of stuff when I took the tax portion of the CPA exam.