Question about depreciation for remodeling of rental house

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Question about depreciation for remodeling of rental house

Hoang Nguen
San Jose, CA · Member since 2017 · 21 posts · 2 votes

Dear All,

I added two more rooms to current rental house. The remodeling was finished on November 2017 and Tenant moved in these two rooms on December 2017. Below is the list of items in the contract with constructor.

Could you please let me know, which items I have to depreciation 27.5 years and which items I can depreciation for 15 years or less?

Demolition and excavations
Foundation
Plumbing
Framing
Electrical
Stucco
Drywall
flooring
Painting
Finishing (light, bathroom, doors and windows)
Roofing
Landscape

Thanks,

Hoang

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    8y
    Originally posted by @Hoang Nguen:

    Dear All,

    I added two more rooms to current rental house. The remodeling was finished on November 2017 and Tenant moved in these two rooms on December 2017. Below is the list of items in the contract with constructor.

    Could you please let me know, which items I have to depreciation 27.5 years and which items I can depreciation for 15 years or less?

    Demolition and excavations
    Foundation
    Plumbing
    Framing
    Electrical
    Stucco
    Drywall
    flooring
    Painting
    Finishing (light, bathroom, doors and windows)
    Roofing
    Landscape

    Thanks,

    Hoang

    Hoang, 

    For Demolition and Excavation, 

    • Generally, land preparation costs (e.g., clearing, grading, and leveling the land) incurred when constructing a building are generally added to the cost of the land.
    • Some may be depreciated as part of the building cost if they would have to be incurred again to replace or rebuild the building. 
    • The costs of demolishing an existing structure generally must be added to the basis of the land on which the structure was located. 

    Depending on your situation, if it is added to land, it is not depreciable. If building 27.5. (25 years if depreciated after 2018)

    Everything else (except for landscape) is 27.5 as it is considered either building and it's structural component and building systems. Assuming you are not doing cost segregation. 

    You can expense the landscaping cost because this is your current rental property. 

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  • Hoang Nguen
    OP
    San Jose, CA · Member since 2017 · 21 posts · 2 votes
    8y

    Hi Ashish,

    Thank you very much for your help,

    The total cost of landscaping was $11,000. Can I expense all of $11,000 for last year? Does IRS have limit of operation cost (expense) for a rental house each year?

    Thank you,

    Hoang

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  • Logan AllecBusiness Member
    Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
    8y
    Trick is to do all the structural stuff to get the unit rent-ready first, then advertise your property (at this point it's placed in service), then finish up the more cosmetic stuff that you can take as a repair deduction.
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  • Logan AllecBusiness Member
    Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
    8y
    Also in some cases you can still expense work done to a building system. If the work done is a betterment, adaptation, or restoration to the building system as a whole, the work must be capitalized. If not, you may expense as repair. Of course this is assuming that the property has already been placed in service (see my previous comment).
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  • Joe SplitrockPro Member
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    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    8y

    @Ashish Acharya I thought the change to 25 years depreciation for residential property didn't make it through reconciliation?

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    8y
    Originally posted by @Joe Splitrock:

    @Ashish Acharya I thought the change to 25 years depreciation for residential property didn't make it through reconciliation?

     Yes, it says that in my reply

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