Depreciation & Recapture
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In calculating depreciation on both my rental apartment building and its furniture, what depreciation type, asset class, depreciation method, and recovery period should be used?
An apartment building rented for residential purposes is considered residential rental property. Residential rental property is depreciated, generally, over 27.5 years under the modified accelerated cost recovery system (MACRS) using the general depreciation system (GDS) straight line method with a mid-month convention. Furniture for use in residential rental property, generally, is depreciated over 5 years using the MACRS, GDS 200% double declining balance method with a half-year convention. The convention used may vary depending on when the property was placed in service. Publication 527 (PDF), Residential Rental Property, contains the appropriate depreciation tables as does Publication 946 (PDF), How to Depreciate Property. Attach Form 4562 (PDF), Depreciation and Amortization, to your individual income tax return to claim the depreciation for the year this property is placed into service and for each subsequent tax year in which you own the property.
References: We replaced the roof on a residential rental property and need to know what to use for the classification and recovery period to calculate depreciation?
Replacement of a roof on a residential rental property is a capital improvement to the structure. The roof is in the same class of property as the property to which it is attached. Since the property is residential rental property, the roof is generally depreciated over a residential rental property recovery period, of 27.5 years using the straight line method of depreciation and a mid-month convention. You cannot write off (or take a loss on) any remaining basis in the replaced roof. For more information, refer to Publication 527 (PDF), Residential Rental Property, and Publication 946 (PDF), How to Depreciate Property.
References: On residential rental property, would new windows and siding be considered a repair that could be deducted against income, or would they be capitalized as an improvement?
Replacement of windows and siding on a residential rental property is a capital improvement to the structure, provided the replacement improves the value of this property. The windows and siding, in that event, are in the same class of property as the property to which they are affixed. In this case, the windows and siding are generally depreciated over a recovery period of 27.5 years using the straight line method of depreciation and a mid-month convention. For more information, refer to Publication 527 (PDF), Residential Rental Property, and Publication 946 (PDF), How to Depreciate Property.
References: We have incurred substantial repairs to our rental property: new roof, gutters, windows, furnace, and outside paint. What are the IRS rules concerning depreciation?
Replacements of roof, rain gutters, windows, and furnace on a residential rental property are capital improvements to the structure because they materially add to the value of your property or substantially prolong its life. The items would be in the same class of property as the rental property to which to which they are attached. Since the property is residential rental property, the items are generally depreciated over 27.5 years using the straight line method of depreciation and a mid-month convention.
Repairs, such as repainting the house, are currently deductible expenses. A repair keeps your property in good operating condition. It does not materially add to the value of your property or substantially prolong its life. Repainting your property inside or out, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows are examples of repairs. If you make repairs as part of an extensive remodeling or restoration of your property, the whole job is an improvement. You should capitalize and depreciate the repair costs as the same class of property that you have restored or remodeled. For more information, refer to Publication 527 (PDF), Residential Rental Property, and Publication 946 (PDF), How to Depreciate Property.
References: How many years do I depreciate a new furnace installed as an improvement on residential rental property and what method do I use to compute the depreciation?
Replacement of a furnace in a residential rental property is a capital improvement to the structure. The furnace is in the same class of property as the property in which it is installed. Since the property is residential rental property, the furnace is, generally, depreciated over a recovery period of 27.5 years using the straight line method of depreciation and a mid-month convention. For more information, refer to Publication 527 (PDF), Residential Rental Property, and Publication 946 (PDF), How to Depreciate Property.
References: I purchased a snowblower and a lawn mower strictly for use at a residential apartment building I own. Can I elect the section 179 deduction to fully deduct the costs of the snowblower and lawn mower?
You cannot claim section 179 expense for property held to produce rental income (since it is use in connection with the furnishing of lodging). These assets are classified as 5-year property and must be depreciated as directed in Publication 527 (PDF), Residential Rental Property, and Publication 946 (PDF), How to Depreciate Property.
References: When an individual sells a building, what depreciation is being recaptured? Is it the amount of depreciation taken in the prior years or the depreciation left?
Generally, the amount of depreciation you must recapture for residential rental or nonresidential real property is the excess of the depreciation allowed or allowable over straight line depreciation for the property. Thus, if you sell a building placed in service after 1986 which required the use of the straight-line method, you would not have any depreciation to recapture. However, if you took the 30% special depreciation allowance for your building, this allowance may be subject to recapture. For property placed in 1986 and earlier, see Publication 946 (PDF), How to Depreciate Property. For further information, refer to Publication 544 (PDF), Sales or Other Disposition of Assets, and Supplement to Publication 946 (PDF), How to Depreciate Property.
References: How do I recapture depreciation on rental property that has been sold?
If you dispose of residential rental property placed in service after 1986 (or after July 31, 1986, if the election to use MACRS was made), you would not have any depreciation to recapture because you used a straight-line method. If you do have depreciation to recapture resulting from a gain on the sale, or because you did not meet the condition above, use Form 4797 (PDF), Sale of Business Property, to compute the amount of depreciation recapture.
References: 11.2 Sale or Trade of Business, Depreciation, Rentals: Rental Expenses & Passive Activity Losses (PALs) I own a duplex. I live on one side and rent out the other. Are my mortgage interest and property taxes fully deductible on Schedule E?
No. Assuming that the loan is secured by the duplex, only the mortgage interest and property taxes for the portion you are renting are deductible on Form 1040, Schedule E (PDF), Supplemental Income and Loss. If you receive one bill, you should prorate the rental portion based on square footage. Your portion can be deducted on Form 1040, Schedule A (PDF), Itemized Deductions, if you itemize and meet the requirements for Deductible Home Mortgage Interest. For more information, refer to Publication 527 (PDF), Residential Rental Property (including Vacation Homes), Instructions for Form 1040, Schedule E, Supplemental Income and Loss, and Publication 936, Home Mortgage Interest.
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