Major Renovations to Rental Property Depreciation vs Expense

[John K.]

So I'm looking at buying a single family house that has great numbers as a rental property. But needs carpet, paint and kitchen/bathroom remodel.

I know the Bathroom Remodel / Kitchen remodel are depreciated over the 27.5 years.

Since I'm doing a mini-rehab on the house, does carpet still get depreciated as normal over 5 years or would it be wrapped into the whole project?

Can paint (and other small repairs) still be expended like it normally would or does it have to get wrapped into the project and be depreciated?

[Dave Toelkes]

@John K.

As you have already been told, everything done to make a property rent ready (even what you may consider minor repairs) is added to your cost basis and depreciated on the 27.5 year schedule for the dwelling structure.

If you want to do cost segregation for the carpet, you have to tell us what kind of carpeting. Area rugs that you can take with you when you move, are depreciated as personal property on a five year schedule if you leave them behind for your tenants.

Wall-to-wall carpeting is an integral component of the property and depreciated on the same 27.5 year schedule as the dwelling structure just as you would depreciate a new roof, a new water heater, or a new HVAC system.

The way I handle this is to add the carpeting cost to the cost basis for the dwelling structure, then depreciate the dwelling structure as a single asset. In about fifteen years when the wall-to-wall carpeting needs to be replaced, I start a new 27.5 year depreciation schedule for the new carpeting as a separate asset. Keeps the accounting simpler for me.

Just how I see it.