May I get a full 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

I would recommend buying a portable ac

Answer 2

I think you asked this question twice, so I will repeat my answer here as well - except to add that leasehold improvements relate to walls and cabinets and such that relate to the interior of the space.  A leasehold improvements do not include elevators, escalators, enlarging the building, internal structural framework nor structural components - so air conditioners would not be considered a leasehold improvement by the IRS.



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.

Answer 3

I did this exact thing once.  I charged the full amount to the business as Leasehold Improvements.  Nothing ever came up and  it never was questioned.

I was told this later.

If you are leasing the building, replacing the AC could come into question by the IRS.

Bear in mind that it becomes part of the building and isn't something that you can remove if you relocated.  It is not an asset that you own.

Shouldn't the landlord be replacing this?  Even if they set a max limit, you could pay a difference for a larger unit.

Good luck.