Replace A Front Door: Expense Item Or Depreciable Item

3 Replies

Hello all: I am curious how your CPA or tax preparer handles these items.

Had a conversation with a tax preparer yesterday about replacing a front door. He states he expenses the item that year rather than depreciate it.  He also had ideas on appliances that I thought were different: on an appliance package purchased for a new rental he wants to depreciate them vs a replacement item such as just replacing the dishwasher he want to expense the total cost that year. I am wondering if his methods of preparing taxes could cause some problems with the tax man. Thoughts?

John Thedford, Real Estate Agent in FL (#BK3098153)

Generally, you capitalize assets that last over a year or an operating cycle. A door should fit that bill. There is IRC Section 179 Depreciation, which allows for straight expensing through of certain tangible, depreciable items. A door would seem to fit the bill - the catch being with 179 that you are limited in deductions to the lesser of your net operating income or $500K.

As always, consult with a tax professional for more details.

Here's how I understand it. (It may be too simplistic, but I leave the actual details to my accountant.) If you are rehabbing/fixing up a place to rent, those are capital expenditures. If you are replacing a worn out part of a rental unit, that's a repair. If you buy a new larger item (like those appliances) it's probably a depreciable thing. So if you are between tenants and are replacing the door that would be depreciable, but if the door broke on an occupied unit and you had to replace it, it would be a repair.

There seem to be any number of ways to squeeze this, and a good accountant will be able to gauge the advantages/disadvantages of different scenarios. Obviously there are set rules-- but there are a lot of opinions on how those can be applied! I've heard of someone replacing half their roof one year and the other half the next because they would benefit more from a deduction vs. a depreciation scenario...

The IRS has a safe harbor for capitalizing assets. If the door was less than $500 bucks expense it. Greater than $500 you have to look at other criteria.

Just read this --> http://www.irs.gov/irb/2013-43_IRB/ar05.html and everything will be clear as day.