Capital Expense vs Repair Expense

[Emily D.]

For bookkeeping/ tax purposes: if you replace an A/C unit and hot water heater does it get categorized as a capital expenses or repair cost? I have been researching to ensure I log it correctly in our bookkeeping software, but want to be sure I understand correctly. Thanks in advance! 

[Randy Rodenhouse]

I the old days for any renovation costs that improve the property and that provided this benefit for more than one year, you needed to capitalize these expenses and claim an annual depreciation expense over the life of the capitalized assets.  

However, now If the cost of the water heater is $2,500 or less, it can be expensed (called the called the Safe Harbor Election but don't worry about that...Prior to 2016, the threshold was only $500).  The HVAC should be capitalized.