Rental Property Investor · Falls Church, VA · Member since 2021 · 23 posts · 2 votes
Newbie here.
My HVAC needs to be replaced in my primary residence condominium. It’s still working but it needs to be replaced in the near future because it’s old.
I plan on moving out in six months and renting it out. Will be my first rental.
From a tax (and any other factors) perspective should I go ahead and replace it now or wait until I convert the property to a rental? From what I understand this would be a capital improvement which can be depreciated over 27.5 years but not sure how helpful that is and if it will help my spouse and I (both W2) on our personal taxes.
Developer · New Orleans, LA · Member since 2015 · 1k+ posts · 898 votes
5y
@Nabeel Qureshi I agree that you should wait until it fails, unless you have a trusted AC company telling you differently. If you are convinced about replacement, I would do it before you get a renter in the place, otherwise wait use use it until it is no longer economically repairable.
It’s 41 years old apparently. When I bought the condo (no intention at that time to rent it out) the building manager told me it’s original and home inspector wasn’t sure of age but said it might be.
I had three HVAC companies come by and tell me it needs to be replaced as the building engineer said that too.
Rental Property Investor · Boston, MA · Member since 2019 · 124 posts · 121 votes
5y
I'm not an accountant and You should check with your accountant as to the tax part, general understanding is you can't deduct expenses/repairs while its owner occupied, but once it's a rental you can. Cost of improvements while you're using as a primary residence can potentially be added to your cost/tax basis for the home, but not depreciated like you mention. Easy question for any accountant and happy to be corrected by anyone in this forum. I'm wondering if you can find the month/year of manufacture on the HVAC unit as a 40+ year lifespan would be incredible and not very likely. Each brand/model has a way to find out the date it was made. I wouldn't replace it until it dies. Good luck!
Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
5y
If the HVAC can last another six months, it's generally more advantageous to wait until after there's been a change in use to trade or business property.
If the HVAC can last another six months, it's generally more advantageous to wait until after there's been a change in use to trade or business property.
What do you mean by "after there's been a change in use to trade or business property."
Rental Property Investor · Falls Church, VA · Member since 2021 · 23 posts · 2 votes
5y
@Bradley Padula@John Underwood so it's definitely 41 years old (as confirmed by the condo association engineer, building manager, multiple HVAC companies, and the manufacturer), its the original, granted its for a 1705 sq. ft. condo on the 6th floor so perhaps didn't run that much over the years (I have only been living here a year and it works fine!).
Probably needs to be replaced soon, just figuring if I should do it now while I live here, or better to do it when its a rental...appreciate the input all! And the BP community, so helpful :)
Real Estate Agent · Prior Lake, MN · Member since 2015 · 42 posts · 63 votes
5y
Just because the HVAC is old doesn't mean you should replace it. I would wait until it fails before I replaced it. If there is a current safety issue I would replace it immediately. From a tax perspective, you would be well advised to wait until it's a rental unit to make a replacement decision. However, you need to consult a tax accountant to get their professional opinion.
@Bradley Padula@John Underwood so it's definitely 41 years old (as confirmed by the condo association engineer, building manager, multiple HVAC companies, and the manufacturer), its the original, granted its for a 1705 sq. ft. condo on the 6th floor so perhaps didn't run that much over the years (I have only been living here a year and it works fine!).
Probably needs to be replaced soon, just figuring if I should do it now while I live here, or better to do it when its a rental...appreciate the input all! And the BP community, so helpful :)
Specialist · Los Angeles, CA · Member since 2016 · 61 posts · 32 votes
5y
21 year HVAC contractor here, at twenty years old the system was at it’s useful life, it definitely needs to be replaced. A system that old is very inefficient and is costing you more on your utility bills.
I would wait until I got a tenant in the unit. What state are you in? If you have hot summers change it as soon as you get a tenant. The last thing you want is for it to fail in the middle of the summer when all of the HVAC companies are swamped, and they tell you they can’t get to you until next week.
Investor · Dallas, TX · Member since 2015 · 446 posts · 197 votes
5y
@Nabeel Qureshi
Anyone who says replace it now doesn’t know anything about taxes. You have no incentive to replace it now as described by many above. This isn’t something where there are two views on it. One is wrong and one is right. Once it’s a rental it is a deductible or depreciable expense depending on what you do and how much it costs. In your case it will be depreciable because I imagine they can’t do a component upgrade o something that old so you will be getting an entirely new system. How much are the quotes? Make sure you get multiple.
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
5y
If you have the money to replace it whenever then I would wait until it actually doesn't work anymore to replace it. The only argument for replacing it before then is for piece of mind.
Rental Property Investor · IL · Member since 2015 · 165 posts · 107 votes
5y
41 years old... that thing is on borrowed time. If I were in your situation I would replace it now rather than deal with the surprise break down when you have a tenant living there.
WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
5y
find the "best" home warranty company and hope it breaks this summer. they will try to patch it up, but at 40+ years old, i doubt they'd be able to source the parts for it and will have to replace it.
It’s 41 years old apparently. When I bought the condo (no intention at that time to rent it out) the building manager told me it’s original and home inspector wasn’t sure of age but said it might be.
I had three HVAC companies come by and tell me it needs to be replaced as the building engineer said that too.
I have had mixed results with old HVAC. I have bought several that were 30+ years old and they are ticking time bombs. I had one house where the inspector told me the 32 year old furnace could last a day or could last for years. One month later the tenant called me after the heat exchanger cracked and exploded. No fire, but a really loud boom. I would proactively replace in this situation. It is harder to deal with this kind of stuff when a tenant is in place. As far as the expense, it just adds basis to your value for deprecation. I am all about waiting to fix things, but in this case I would be proactive.
Anyone who says replace it now doesn’t know anything about taxes. You have no incentive to replace it now as described by many above. This isn’t something where there are two views on it. One is wrong and one is right. Once it’s a rental it is a deductible or depreciable expense depending on what you do and how much it costs. In your case it will be depreciable because I imagine they can’t do a component upgrade o something that old so you will be getting an entirely new system. How much are the quotes? Make sure you get multiple.
There are two or more views on most everything, unless you are narrow minded. It is personal residence currently. When it gets converted to rental, capital improvements can be added to basis for deprecation. Your statement is incorrect from a tax perspective, it can be depreciated. If he waits until after it is in service as a rental, there may be options to accelerate the deprecation schedule. From that perspective you could argue it is better to wait. On the flip side it is harder to do a major HVAC upgrade when tenants are living there, so it may be easier to do it now. There is also the reality that furnaces go out in the dead of winter and air conditioners go out in the dead of summer. That can leave a landlord with angry tenants and force a landlord into rush repair situations that can cost more money. In my opinion it is better to get quotes and do it in the spring, when neither heat or AC is a necessity. Add the expense to basis when you convert to rental and you get the tax benefit. You also remove the risk of emergency calls from tenants when it fails.
Rental Property Investor · Falls Church, VA · Member since 2021 · 23 posts · 2 votes
5y
@Marco G.
I definitely have multiple quotes. They seem to range right now in the 7500-8000 range. How much will that really help when depreciating this over 27.5 years?
I do agree it will be easier to coordinate a replacement while living there logistically.
In terms of adding it to cost basis Versus the depreciation method (since it’s considered an improvement when rental) which is better?
If I do it now rather than when it’s a rental how much am I really losing on not going the depreciation route?
It is really mostly a difference in recovery period, which depends on tax law at the time of the expense. Doing it as a rental would probably be better. Of course that assumes you not doing it on an emergency basis. In my experience getting quotes to proactively replace seem to come in less expensive than doing it in an emergency.
Rental Property Investor · Phoenix, AZ · Member since 2016 · 553 posts · 314 votes
5y
My experience with HVAC has been that the price goes up when the system is broken. Planned replacements are about 25% cheaper than emergencies, because they don't have you bent over the barrel.