Plumbing and HVAC Decisions
Central plumbing and HVAC are listed structural components. Dedicated kitchen, medical, or process hook-ups are where studies and the IRS industry matrices draw a line. Courts have not adopted a Scott Paper-style allocation of those systems as an IRS-accepted method.
Educational information, not tax advice.
Updated 2026-10-14
Key takeaways
- The regulation lists plumbing, plumbing fixtures, and central air-conditioning components as structural components.
- Morrison kept kitchen hand sinks, sanitary tile, and insulated garbage-room floors with cafeteria buildings, and allowed kitchen panel boards — an electrical, not a plumbing, result.
- AmeriSouth kept “special” apartment HVAC and plumbing with the 27.5-year buildings. Boddie-Noell rejected percentage claims against restaurant HVAC and plumbing on a thin record.
- Do not extend IRS-accepted electrical functional allocation to plumbing or HVAC.
- Educational information, not tax advice.
Treas. Reg. §1.48-1(e)(2) includes plumbing and plumbing fixtures, and components of a central air-conditioning or heating system, among structural components. Occupant restrooms, domestic water, and building-wide HVAC usually stay with the building. The sole-justification exception is for machinery whose only reason for installation is process temperature or humidity. The audit guide tells examiners not to allocate a single HVAC unit between comfort and process.
Morrison, Inc. v. Commissioner, 891 F.2d 857 (11th Cir. 1990), is the leading restaurant plumbing opinion that was opened for this library. Stainless kitchen hand sinks, required by health codes, bolted to walls and tied to building water and sewer, were structural components even though employees could disconnect them when the cafeteria closed. Quarry floor tile that turned up the wall, ceramic sanitary wall tile set in grout, extra-insulated cooler and garbage-room floors, and serving-line concrete curbs also failed. Those holdings are about restaurant construction, not about a process drain that exists only for a machine.
AmeriSouth XXXII, Ltd. v. Commissioner, T.C. Memo. 2012-67, tested “special plumbing” and “special HVAC” in garden apartments. Kitchen sinks, garbage-disposal waste piping, dishwasher branches, and dwelling HVAC that conditioned apartments were treated as part of the residential buildings. Dryer vents were among the few items the taxpayer kept. The court would not re-label ordinary apartment plumbing as equipment by calling it special.
Boddie-Noell Enterprises, Inc. v. United States, 36 Fed. Cl. 722 (1996), involved Hardee’s claims for portions of HVAC, electrical, plumbing, and ceiling systems based on percentages, after-the-fact studies of seven units, and extrapolation to the rest. The Court of Federal Claims found items listed as structural components in the regulations not creditable, and it separately found the estimates “far too unreliable.” The audit guide treats that forum’s reading as limited. HCA classified hospital items one by one; those item results were not IRS-acquiesced.
The IRS restaurant matrix, reproduced in Publication 5653, treats dedicated water, gas, and drain lines to kitchen equipment, equipment exhaust hoods, and air makeup solely for kitchen equipment as §1245 property on that examiner map. Matrices are not law. They also state that allocation of HVAC is not appropriate: either the unit meets the sole-justification test or it does not. Do not describe a Scott Paper percentage split of a chiller or a domestic-water riser as an IRS-accepted method (flag F-09). This page is educational information, not tax advice.
Residential rentals
The residential rental matrix treats dedicated appliance branch circuits and appliance plumbing hook-ups as 5-year property, and general kitchen plumbing as part of the 27.5-year building. Cabinetry, counters, and sinks are building in that matrix. AmeriSouth is consistent with being slow to pull apartment wet utilities out of the building.
What allocation does not cover
Functional allocation, as the audit guide discusses it, is an electrical-distribution technique. Copying a load percentage onto plumbing fixtures or rooftop units is not an IRS-accepted method in that guide.
How to use this page
Separate three questions. Is the unit central building HVAC or plumbing? Then the regulation’s structural-component list is the starting point. Is the unit process machinery whose sole justification is temperature or humidity for other machinery or food processing? Then the regulation’s exception is the starting point. Is the item a dedicated branch that exists only for a machine — a gas line to a range, a drain to a dishwasher, a kitchen-only makeup-air unit? Then look at Morrison, AmeriSouth, the industry matrix, and the facts of that hook-up.
Do not average a rooftop unit between lobby comfort and a server room and call the average an IRS method. The audit guide says allocation of HVAC is not appropriate. Boddie-Noell’s restaurant percentages failed on both the regulation list and the quality of the estimates. HCA’s hospital item results were not acquiesced.
Educational information, not tax advice. Super Intelligence is proposed only.
Limits and flags
Do not extend IRS-described electrical functional allocation to plumbing or HVAC (flag F-09). A rooftop unit that also cools a server closet is still tested as one HVAC unit against the sole-justification exception, not averaged into a Scott Paper percentage. Morrison’s kitchen hand sinks and sanitary tile stayed with cafeteria buildings; that is a restaurant construction holding, not a process-drain holding.
AmeriSouth kept dwelling HVAC and “special plumbing” with 27.5-year apartments (flag F-11). Boddie-Noell is forum-limited and also a cost-estimate failure. Industry matrices in Publication 5653 are examiner maps, not law. HCA’s hospital item results were not IRS-acquiesced.
Super Intelligence is proposed only. Educational information, not tax advice.
Practice note
A kitchen hand sink on building water and sewer stayed with Morrison’s cafeteria even though it could be disconnected at close. A dwelling HVAC unit that conditions apartments stayed with AmeriSouth’s 27.5-year buildings even though the study called it special. Those are the ordinary facts. A process drain or a makeup-air unit that exists only for a machine is the exception that still has to be proved.
Do not average a rooftop unit and call the average Scott Paper. The audit guide says HVAC allocation is not appropriate: either the unit meets the sole-justification exception or it does not. Restaurant-matrix rows for dedicated kitchen gas and drains are examiner maps, not holdings.
Sources
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- 6IRS Publication 5653 — Cost Segregation Audit Techniques Guide (rev. 2-2025)(opens in a new tab)
Written for IRS examiners. The guide states it is not an official pronouncement of law and cannot be cited as authority. It predates the July 2025 law.