House Hacking - How to Calculate HVAC Useful Life for Depreciation Expense?

Thanks for the detailed response! Just to make sure I understand - if my duplex is exactly 50/50 in terms of square footage (which it is), I'd depreciate $4,350 (50% of $8,700) over 5 years using MACRS. That's about $870 per year in depreciation expense, right? Also, would the fact that I sometimes use the furnace to heat both units (connected system) change anything about how I calculate the business use percentage?

Your calculation approach is on the right track. With a 50/50 split, you'd depreciate $4,350 over 5 years. However, MACRS doesn't divide evenly by 5 - it uses specific percentages for each year (20%, 32%, 19.2%, 11.52%, 11.52%, 5.76% in the final half-year). So your first year depreciation would actually be about $870 (20% of $4,350). Regarding the shared HVAC system, this doesn't change your business use percentage. Since the system serves both units equally, the 50% allocation based on square footage is appropriate. What matters is the overall space allocation between personal and rental use, not how specific systems are utilized.

Does taxr.ai handle partial-year depreciation too? I replaced my rental property's water heater in October last year and wasn't sure how to calculate the right amount since I didn't own it for the full year.

Is this actually better than just asking my CPA? Last time I tried one of these online tax tools it got my rental property stuff all wrong and I ended up having to file an amendment.

Yes, taxr.ai definitely handles partial-year depreciation calculations correctly. It applies the "half-year convention" or "mid-month convention" depending on when you placed the asset in service. For your October water heater replacement, it would automatically apply the right percentage for that partial first year. Regarding CPA comparison, I've actually found it's complementary to working with a tax professional. I use the reports from taxr.ai to double-check what my accountant does, and several times it's caught things he missed about rental property deductions. Many CPAs don't specialize in real estate tax strategies, so having a tool specifically designed for that has been worth it for me.

Wait, how does this actually work? Do they just call the IRS for you? I thought nobody could get through to them these days.

This sounds like BS honestly. The IRS wait times are 2+ hours minimum and nobody can magically skip the queue. They're probably just connecting you to some random "tax expert" and claiming it's the IRS.

They use a technology that keeps dialing and navigating the IRS phone system automatically until it gets through, then it calls you once there's an actual IRS agent on the line. It's basically doing the waiting for you so you don't have to stay on hold for hours. I was skeptical too, but when I got connected, it was definitely the official IRS support line - they verified my identity using the same security questions the IRS always asks, and the agent had access to my actual tax records. It's not a third-party tax expert; it's literally just a service that handles the frustrating hold time for you.

This is interesting! The new system is definitely more energy efficient than the old one (which was from the 1990s), but I didn't increase the capacity or add new functionality like zone control. It was a straight replacement because the old one completely died. Does that still count as an improvement requiring depreciation, or could it potentially qualify as a repair?

In your case, it sounds like it would still be considered a capital improvement requiring depreciation rather than a repair. Since you completely replaced the system with a new, more efficient model, the IRS would view this as an improvement that extends the useful life of the property. Repairs typically involve fixing individual components of a system to keep it functioning, rather than wholesale replacement. For example, replacing just a broken compressor or fan motor might qualify as a repair, but replacing the entire HVAC system almost always falls into the capital improvement category requiring depreciation.

The 199A deduction has income thresholds though. If you make over $170,050 as a single filer or $340,100 for married filing jointly (for 2023), the deduction starts phasing out for specified service businesses. Does rental income count as a specified service business?

Rental real estate is not considered a specified service trade or business (SSTB), so the income limitations work differently. Even high-income taxpayers can potentially qualify for the full 20% deduction on their rental income. However, to claim the deduction, your rental activity needs to qualify as a "trade or business" under Section 162, which generally requires regular and continuous involvement. The IRS created a safe harbor for rental real estate that requires keeping separate books and records, 250+ hours of service annually, and maintaining time reports. For house hackers with just one property, meeting those requirements can be challenging, so documentation is key.

This is really helpful advice about documentation! I'm curious about the cost segregation study you mentioned - at what point does it make financial sense to get one done? I'm just getting started with house hacking and only have this one duplex, but I'm planning to buy more rental properties over the next few years. Is it something you do property by property, or can you bundle multiple properties together? And roughly what kind of cost are we talking about for a study like that?