Depreciating personal property

6 Replies

A question on depreciation for residential investment properties. When calculating depreciation, the regular schedule is to depreciate the property over 27.5 years. Do I need to separate out personal property (appliances and the like) and depreciate them at a different rate? If so, how do I calculate their value? Do I need an assessment or is a general estimate good enough?

It's only "personal property" if you are personally using it. (In which case it isn't deductible.)

If it is a property used in your business it is a business property. (We tax weenies like very precise language because slight variations can mean very different things in the tax code.)

Assuming it is business property - was the business property in question conveyed with the sale price of the real property?

@Ari Bachrach

Yes you can bifurcate depreciation of assets. Different assets can have different depreciation years (in residential like 7-27.5 years). Carpet, appliances, parking lots, etc.  Talk to your accountant with your goals in mind and see what method best meets those goals. Depreciation recapture, saving money up front, leaving depreciation for later to offset interest charges are things that can and should be discussed.

Originally posted by @Paul Allen :

It's only "personal property" if you are personally using it. (In which case it isn't deductible.)

If it is a property used in your business it is a business property. (We tax weenies like very precise language because slight variations can mean very different things in the tax code.)

Assuming it is business property - was the business property in question conveyed with the sale price of the real property?

Okay, so maybe I've got my terms incorrect. I'm referring to things like appliances which are in the property like a fridge, stove, washer, dryer, etc. (Since the landlord insurance covers that with personal property insurance I just used that term). Would that count as business property then?

To answer your other question, in some cases it conveyed with the purchase, in some cases I was buying a rehab and put in new appliances.

In your rental property those items count and can be depreciated at different times or when replaced. As a common rule of thumb most people feel they run out of depreciation faster than they want. when they sell  they hate the recapture and many don't know it exists until tax time. Check it against your plan. Pretty easy question with your CPA. 

@Ari Bachrach

Despite Paul Allen's comment, you are using the term "personal property" correctly.  Yes, personal property can be depreciated separately and on a faster schedule than the dwelling structure.  Personal property generally does include free standing appliances.  Think of it this way:  if you could pick up your property, take off the roof, and turn the building upside down, everything that would fall out is probably personal property.  Furniture and appliances that you provide for the tenants' use is personal property that can be depreciated on a 5 year schedule.  Stuff that does not fall out of your rental property (like the water heater and the HVAC system) are structural components of the dwelling structure and are depreciated along with the structure over 27.5 years.

Typically, when I buy a property and used appliances convey with the property, I just wait until the appliance has to be replaced, then I depreciate the full cost of the replacement as a separate asset on a five year schedule.  If you did not want to do this, then figure out what the thrift shop value of the used appliance is, subtract that amount from the depreciation basis of the dwelling structure, then depreciate the thrift shop value of that appliance on a five year schedule.  

Originally posted by @Dave Toelkes :

@Ari Bachrach

Despite Paul Allen's comment, you are using the term "personal property" correctly.  

Dave's right, I blew that one out my backside. Sorry for the confusion. Best of luck with your investing!

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