IS THERE a TAX DEDUCTION on...?

Question

OKAY SO I OWN AND OPERATE A DRY CLEANERS IN A PLAZA SQUARE IN GLENDALE, CA AND I PAY RENT TO THE PLAZA OWNER. MY AIR CONDITIONER HAS RECENTLY BROKE AND A NEW ONE IS PRETTY EXPENSIVE(1000 SQUARE FOOT AREA). IT GETS PRETTY HOT SINCE THERE IS A BAKERY NEXT DOOR AND WITH ALL THE IRONING GOING ON. SO HERE'S THE QUESTION. IF I WERE TO PURCHASE LETS SAY A $4,000 AC SYSTEM, CAN I PUT THAT AS A TAX WRITE-OFF AND WILL I GET CREDITED ON THE FULL $4,000 OR TO WHAT PERCENTAGE WILL IT BE?

10 POINTS TO BEST ANSWER!

Answer 1

It's an expense to doing business.  So its an expense. like supplies would be an expense. like any other expense.  You may want to depreciate it over the life of the unit but you can also take most of the expense as a section 179 deduction the year you bought it.

Answer 2

The IRS considers HVAC systems including air conditioners and furnaces to be structural components of a building and require them to be depreciated over the course of 39 years.  This means that if you install the unit on 1/1/09 and the price is $4,017, you can take a $103 deduction for depreciation in 2009 and every year thereafter for 39 years.

Some would argue that you are repairing the broken air conditioning and should record the purchase as a repair expense - but the IRS would argue that you are extending the life of the building as well as increasing it's value, so it is not a repair and becomes a part of the building.

Section 179 allows you to deduct the full amount of qualifying property in the year you purchase the property up to $125,000.  Unfortunately, the IRS does not include air conditioning as qualifying property, so you must follow the 39 year depreciation rule.

This online article talks about the need to reduce the depreciation period for air conditioners from 39 years to 15 years:  http://www.acca.org/article.php?id=124  There has been some talk in congress to make this change, but to my knowledge that change has not been made.

Some accountants argue that the courts generally regard "useful life" as a better measure of the time period used to record depreciation.  As a result, they would argue that you should use a fifteen year depreciation period for air conditioning.  Using this approach, you would take a $268 depreciation deduction every year for fifteen years.