Depreciate or Deduct freestanding appliance in remodel
Member since 2018 · 72 posts · 25 votes
Depreciate or Deduct freestanding appliance in remodel
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Accountant · Long Island, NY · Member since 2021 · 184 posts · 148 votes
7moQuote from @JD Martin:
Quote from @Christopher Tile:
Quote from @Zhenyang Jin:
Hi all,
I spent 60K to fully remodel one unit last year. Within 60K, there are 6K spent on freestanding appliances (range, refrigedger, dishwasher and combo washer & dryer) .
Question: Whether I can fully deduct 6K appliance as repair expense + 52K remodel improvement? Or I have to depreciate whole 60K improvement?
Following is one sentence from IRS 587: "However, if you make repairs as part of an extensive remodeling or restoration of your home, the entire job is an improvement."
Regards, Clark
This is the route I would go. I always prefer expensing to depreciation. Depreciation is just deferring taxes.
If you can expense, you absolutely should. That's why itemized invoices are so important when completing a sizable renovation. Or in a simple scenario of buying all new appliances.
19 Replies
- Accountant · Long Island, NY · Member since 2021 · 184 posts · 148 votes7moHey Clark - generally you can expense freestanding appliances as an "appliance" expense if each appliance is under $2.5k a piece. Make sure you keep the invoices for those and ensure you are electing the de minimus safe harbor.
Quote from @Zhenyang Jin:
Hi all,
I spent 60K to fully remodel one unit last year. Within 60K, there are 6K spent on freestanding appliances (range, refrigedger, dishwasher and combo washer & dryer) .
Question: Whether I can fully deduct 6K appliance as repair expense + 52K remodel improvement? Or I have to depreciate whole 60K improvement?Following is one sentence from IRS 587: "However, if you make repairs as part of an extensive remodeling or restoration of your home, the entire job is an improvement."
Regards, Clark
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes7mo
Quote from @Christopher Tile:
Hey Clark - generally you can expense freestanding appliances as an "appliance" expense if each appliance is under $2.5k a piece. Make sure you keep the invoices for those and ensure you are electing the de minimus safe harbor.Quote from @Zhenyang Jin:
Hi all,
I spent 60K to fully remodel one unit last year. Within 60K, there are 6K spent on freestanding appliances (range, refrigedger, dishwasher and combo washer & dryer) .
Question: Whether I can fully deduct 6K appliance as repair expense + 52K remodel improvement? Or I have to depreciate whole 60K improvement?Following is one sentence from IRS 587: "However, if you make repairs as part of an extensive remodeling or restoration of your home, the entire job is an improvement."
Regards, Clark
This is the route I would go. I always prefer expensing to depreciation. Depreciation is just deferring taxes.
Skyline Properties - 7moMichael PlaksPro MemberTax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
Quote from @JD Martin:
I will disagree, although usually we're on the same page.
Whether you apply 100% bonus depreciation to appliances or deduct it as repair produces the exact same mathematical result in the first year.
If the property is sold soon afterwards, and the value of these appliances is not zero, then indeed there is a small negative consequence due to depreciation recapture. It is not additional taxable income though, it is merely changing the rate of taxation on the small portion of the profit from the sale. We're talking a rate change on a portion equal to the residual value of the appliances - a negligible number for practical purposes. And even then, the rate bump does not always happen, either.
Finally, not something to ignore: loan eligibility. Unlike a regular deduction, depreciation is added back by underwriters - which matters.
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes7mo
Quote from @Michael Plaks:
Quote from @JD Martin:
I will disagree, although usually we're on the same page.
Whether you apply 100% bonus depreciation to appliances or deduct it as repair produces the exact same mathematical result in the first year.
If the property is sold soon afterwards, and the value of these appliances is not zero, then indeed there is a small negative consequences due to depreciation recapture. It is not additional taxable income though, it is merely changing the rate of taxation on the small portion of the profit from the sale. We're talking a rate change on a portion equal to the residual value of the appliances - a negligible number for practical purposes. And even then, the rate bump does not always happen. either.
Finally, not something to ignore: loan eligibility. Unlike a regular deduction, depreciation is added back by underwriters - which matters.
Yeah I meant for the future, and I also meant for myself and not really for anyone else :D . And yeah I also realize the taxable increase is nothing to write home about but I'm all about tax optimization. But that's why it's great to have experts like you on these forums, because I actually never even thought about the implications for future debt.
Skyline Properties - Accountant · Long Island, NY · Member since 2021 · 184 posts · 148 votes7mo
Quote from @JD Martin:
Quote from @Christopher Tile:
Hey Clark - generally you can expense freestanding appliances as an "appliance" expense if each appliance is under $2.5k a piece. Make sure you keep the invoices for those and ensure you are electing the de minimus safe harbor.Quote from @Zhenyang Jin:
Hi all,
I spent 60K to fully remodel one unit last year. Within 60K, there are 6K spent on freestanding appliances (range, refrigedger, dishwasher and combo washer & dryer) .
Question: Whether I can fully deduct 6K appliance as repair expense + 52K remodel improvement? Or I have to depreciate whole 60K improvement?Following is one sentence from IRS 587: "However, if you make repairs as part of an extensive remodeling or restoration of your home, the entire job is an improvement."
Regards, Clark
This is the route I would go. I always prefer expensing to depreciation. Depreciation is just deferring taxes.
If you can expense, you absolutely should. That's why itemized invoices are so important when completing a sizable renovation. Or in a simple scenario of buying all new appliances.
- 4moBasit SiddiqiBusiness MemberAccountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
Quote from @Michael Plaks:
Quote from @JD Martin:
I will disagree, although usually we're on the same page.
Whether you apply 100% bonus depreciation to appliances or deduct it as repair produces the exact same mathematical result in the first year.
If the property is sold soon afterwards, and the value of these appliances is not zero, then indeed there is a small negative consequence due to depreciation recapture. It is not additional taxable income though, it is merely changing the rate of taxation on the small portion of the profit from the sale. We're talking a rate change on a portion equal to the residual value of the appliances - a negligible number for practical purposes. And even then, the rate bump does not always happen, either.
Finally, not something to ignore: loan eligibility. Unlike a regular deduction, depreciation is added back by underwriters - which matters.
An instance where a repair is more beneficial to Bonus Depreciation will make an impact for state income tax purposes.
Most states add back bonus depreciation so bonus depreciation may be unfavorable for state tax purposes.
Basit Siddiqi CPA4.979 Reviews - 4moMichael PlaksPro MemberTax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votesThanks, Basit, an excellent point about state rules which adds to the complexity
Quote from @Basit Siddiqi:
Quote from @Michael Plaks:
Whether you apply 100% bonus depreciation to appliances or deduct it as repair produces the exact same mathematical result in the first year.
If the property is sold soon afterwards, and the value of these appliances is not zero, then indeed there is a small negative consequence due to depreciation recapture. It is not additional taxable income though, it is merely changing the rate of taxation on the small portion of the profit from the sale. We're talking a rate change on a portion equal to the residual value of the appliances - a negligible number for practical purposes. And even then, the rate bump does not always happen, either.
Finally, not something to ignore: loan eligibility. Unlike a regular deduction, depreciation is added back by underwriters - which matters.
An instance where a repair is more beneficial to Bonus Depreciation will make an impact for state income tax purposes.
Most states add back bonus depreciation so bonus depreciation may be unfavorable for state tax purposes.
- 7moMichael PlaksPro MemberTax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
Quote from @Zhenyang Jin:
I spent 60K to fully remodel one unit last year. Within 60K, there are 6K spent on freestanding appliances (range, refrigedger, dishwasher and combo washer & dryer) .
Question: Whether I can fully deduct 6K appliance as repair expense + 52K remodel improvement? Or I have to depreciate whole 60K improvement?
Following is one sentence from IRS 587: "However, if you make repairs as part of an extensive remodeling or restoration of your home, the entire job is an improvement."
You have 3 options to deduct the full cost of appliances:
- repairs under de minimis exception, as mentioned by Christopher
- 100% bonus depreciation
- Section 179Each method results in a 100% deduction, but they still have differences. 100% bonus is often the best method.
- 7moSean GrahamBusiness MemberInvestor , CPA · Detroit, MI · Member since 2016 · 583 posts · 248 votes
Quote from @Zhenyang Jin:
Hi all,
I spent 60K to fully remodel one unit last year. Within 60K, there are 6K spent on freestanding appliances (range, refrigedger, dishwasher and combo washer & dryer) .
Question: Whether I can fully deduct 6K appliance as repair expense + 52K remodel improvement? Or I have to depreciate whole 60K improvement?Following is one sentence from IRS 587: "However, if you make repairs as part of an extensive remodeling or restoration of your home, the entire job is an improvement."
Regards, Clark
Hi @Zhenyang Jin, you're on the right track with IRS 587. For an extensive remodel, the entire $60K is indeed treated as a capital improvement, not a repair expense. However, this is precisely where cost segregation comes into play. The $6K in freestanding appliances (range, fridge, dishwasher, washer/dryer) are considered tangible personal property. These items typically qualify as 5-year depreciable assets, making them eligible for accelerated depreciation, often including bonus depreciation or Section 179 expensing. This allows you to deduct a significant portion of their cost much faster than the 27.5-year life of the structural remodel, maximizing your immediate tax savings.
Hope that helps!
Maven Cost Segregation Tax Advisors554 Reviews- Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes7mo
Quote from @Sean Graham:
Quote from @Zhenyang Jin:
Hi all,
I spent 60K to fully remodel one unit last year. Within 60K, there are 6K spent on freestanding appliances (range, refrigedger, dishwasher and combo washer & dryer) .
Question: Whether I can fully deduct 6K appliance as repair expense + 52K remodel improvement? Or I have to depreciate whole 60K improvement?Following is one sentence from IRS 587: "However, if you make repairs as part of an extensive remodeling or restoration of your home, the entire job is an improvement."
Regards, Clark
Hi @Zhenyang Jin, you're on the right track with IRS 587. For an extensive remodel, the entire $60K is indeed treated as a capital improvement, not a repair expense. However, this is precisely where cost segregation comes into play. The $6K in freestanding appliances (range, fridge, dishwasher, washer/dryer) are considered tangible personal property. These items typically qualify as 5-year depreciable assets, making them eligible for accelerated depreciation, often including bonus depreciation or Section 179 expensing. This allows you to deduct a significant portion of their cost much faster than the 27.5-year life of the structural remodel, maximizing your immediate tax savings.
Hope that helps!
I would disagree a bit with your response Sean. The $60k its self isn't one capital improvement per say- It's likely composed of various independent capital assets/improvements.
I agree that 5-year depreciable assets can qualify for bonus depreciation etc - but that stands true independent of needing a cost segregation study to make that allowable.
Depending on the details available from their renovation the taxpayer should have the costs of these items already; and a good tax professional will advise them on which components of the renovation can be listed as separate 5 or 15 year assets.
I will add that I'm a big fan of a cost segregation study for a property that's in service before a renovation is completed though. - 7moMichael PlaksPro MemberTax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
Quote from @Zhenyang Jin:
Hi all,
I spent 60K to fully remodel one unit last year. Within 60K, there are 6K spent on freestanding appliances (range, refrigedger, dishwasher and combo washer & dryer) .
Hi @Zhenyang Jin, you're on the right track with IRS 587. For an extensive remodel, the entire $60K is indeed treated as a capital improvement, not a repair expense. However, this is precisely where cost segregation comes into play.
Hmm, no, this is precisely where cost segregation does NOT come into play.
Cost segregation is needed when the cost of appliances etc needs to be separated from the rest of the property (or rehab) value.
In this case, the cost is already separated by the purchase receipts.
Cost segregation can still be helpful in this case to identify OTHER short-depreciation property that came with the property or OTHER parts of the rehab. But is is not needed for the appliances.
- 7moSean GrahamBusiness MemberInvestor , CPA · Detroit, MI · Member since 2016 · 583 posts · 248 votes
Quote from @Natalie Kolodij:
Quote from @Sean Graham:
Quote from @Zhenyang Jin:
Hi all,
I spent 60K to fully remodel one unit last year. Within 60K, there are 6K spent on freestanding appliances (range, refrigedger, dishwasher and combo washer & dryer) .
Question: Whether I can fully deduct 6K appliance as repair expense + 52K remodel improvement? Or I have to depreciate whole 60K improvement?Following is one sentence from IRS 587: "However, if you make repairs as part of an extensive remodeling or restoration of your home, the entire job is an improvement."
Regards, Clark
Hi @Zhenyang Jin, you're on the right track with IRS 587. For an extensive remodel, the entire $60K is indeed treated as a capital improvement, not a repair expense. However, this is precisely where cost segregation comes into play. The $6K in freestanding appliances (range, fridge, dishwasher, washer/dryer) are considered tangible personal property. These items typically qualify as 5-year depreciable assets, making them eligible for accelerated depreciation, often including bonus depreciation or Section 179 expensing. This allows you to deduct a significant portion of their cost much faster than the 27.5-year life of the structural remodel, maximizing your immediate tax savings.
Hope that helps!
I would disagree a bit with your response Sean. The $60k its self isn't one capital improvement per say- It's likely composed of various independent capital assets/improvements.
I agree that 5-year depreciable assets can qualify for bonus depreciation etc - but that stands true independent of needing a cost segregation study to make that allowable.
Depending on the details available from their renovation the taxpayer should have the costs of these items already; and a good tax professional will advise them on which components of the renovation can be listed as separate 5 or 15 year assets.
I will add that I'm a big fan of a cost segregation study for a property that's in service before a renovation is completed though.Hi @Natalie Kolodij, thanks for chiming in! I completely agree with your distinction, and it’s an important one for readers to understand.
To clarify, my use of cost segregation in this context referred to the underlying tax principle and methodology of separating tangible personal property from the structural improvement bucket and not suggesting that Clark needs to commission a formal, engineered cost segregation study for a $60k remodel where the appliance costs are already known.
As you rightly pointed out, if the taxpayer or their CPA isolates those $6k appliance costs directly from the receipts and places them on a 5-year MACRS schedule, they are effectively executing that segregation of costs themselves. A full engineered study here wouldn't make economic sense!
I also want to highlight your excellent point about properties that are already in service before a renovation. For anyone following this thread, this is where a formal study provides incredible value. By conducting a study before a major rehab, you can identify the remaining basis of the components being torn out (like old cabinets, flooring, or HVAC) and write them off as a Partial Asset Disposition (PAD).
Great discussion, and I always appreciate your insights on these threads!
Maven Cost Segregation Tax Advisors554 Reviews - 7moSean GrahamBusiness MemberInvestor , CPA · Detroit, MI · Member since 2016 · 583 posts · 248 votes
Quote from @Michael Plaks:
Quote from @Zhenyang Jin:
Hi all,
I spent 60K to fully remodel one unit last year. Within 60K, there are 6K spent on freestanding appliances (range, refrigedger, dishwasher and combo washer & dryer) .
Hi @Zhenyang Jin, you're on the right track with IRS 587. For an extensive remodel, the entire $60K is indeed treated as a capital improvement, not a repair expense. However, this is precisely where cost segregation comes into play.
Hmm, no, this is precisely where cost segregation does NOT come into play.
Cost segregation is needed when the cost of appliances etc needs to be separated from the rest of the property (or rehab) value.
In this case, the cost is already separated by the purchase receipts.
Cost segregation can still be helpful in this case to identify OTHER short-depreciation property that came with the property or OTHER parts of the rehab. But is is not needed for the appliances.
Hi @Michael Plaks, thanks for jumping in! You make a completely valid point regarding the terminology.
To clarify my original comment, I was referring to the underlying tax principle of segregating tangible personal property into shorter MACRS class lives, rather than suggesting Clark needs to commission a formal, engineered cost segregation study for appliances for which he already has the receipts.
Since the $6k is already clearly isolated from the purchase receipts, proceeding with a full engineered study just for those items wouldn't make sense. His CPA can simply assign those specific costs directly to a 5-year schedule.
However, you hit the nail on the head with your second point, which highlights exactly where a formal study would add value in a scenario like this. Out of the remaining $54k spent on the remodel, there is likely a good chunk of other short-depreciation property, such as LVP flooring, carpeting, cabinetry, decorative lighting, or dedicated electrical. Having a professional identify and carve out those hidden components from the structural bucket is where the real tax savings are generated.
Great catch, and I appreciate you keeping the terminology precise for the readers!
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- 7moAaron ZimmermanBusiness MemberAccountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
One item not yet mentioned in this thread was if the units were in service when you did the rehab. For instance, if you bought the property vacant and then started rehabbing, your options would be through bonus depreciation or 179.
Brick House CPAs53 Reviews - Investor · Charleston, SC · Member since 2018 · 198 posts · 84 votes7mo
Great thread — the tax pros here covered the technical options well. From a practical investor standpoint, one thing I'd add: documentation is everything when you're splitting a rehab into improvements vs. separate asset purchases.
What's saved me headaches at tax time is getting separate invoices/receipts for freestanding appliances vs. the larger renovation scope. If your contractor lumped everything into one $60K invoice, it's worth asking them to break it out. The IRS Pub 587 quote about "extensive remodeling" making everything an improvement is exactly why you want a clear paper trail showing the appliances were purchased and installed independently — not as part of the renovation contract.
Also worth noting for anyone in a similar situation: if you're doing BRRRR or value-add deals regularly, having your CPA set up a capitalization policy (the de minimis safe harbor election) at the start of each tax year saves a lot of back-and-forth later. You can elect up to $2,500 per item ($5,000 with audited financials) and just expense qualifying items without worrying about the improvement vs. repair debate.
- 4moJason MalabuteBusiness MemberAccountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 901 votes
Hey Clark — the freestanding appliances can generally be expensed in year one rather than capitalized as part of the larger remodel, as long as each one came in under $2,500 individually. The key is hanging onto the invoices for each appliance and properly making the de minimis safe harbor election on your return. Without that election (and the documentation to back it up), the appliances get rolled into the rest of the improvement and depreciated over the longer life, so it's worth taking the time to keep that paperwork clean.
Malabute & Company CPAs525 Reviews - 4moNate MeekerBusiness MemberReal Estate CPA | California · Member since 2020 · 543 posts · 251 votes
One planning point people miss: fully expensing items is not always best if you plan to refinance or buy more property. Bigger deductions can lower taxable rental income and potentially hurt DTI under lender rules.
I’d have your CPA separate the remodel, appliances, and any true repairs, then decide whether immediate expensing actually helps your bigger plan.
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