Bonus Depreciation Applicable to Rental Condos?

Question

I have been told that Bonus Depreciation is only applicable to "non-residential" rental properties by a CPA. I have heard otherwise on a podcast and am now a bit confused. My situation is as follows:

Rental Condo 1: Purchased 2017. Rehabbed 2017/2018. Put into service 2018. Full gut rehab.

Rental Condo 2: Identical unit to #1, but required no work. Purchased and put into service 2018.

Can I take bonus depreciation on both properties? The webcast I heard said I could as bonus depreciation applied to both "new properties" and "new to me" properties.

Lastly, in the case of Condo 2 - How do i set a basis for the used appliances, fixtures, carpet, etc. ?

Ashish Acharya · Answer

@Ed Matson ,

Yes, you can take bonus depreciation on the qualifying asset purchased for the Property after placing it in service. Not everything qualifies for bonus depreciation. For eg- If you replaced a roof of your house, you cannot take bonus depreciation on it because it has a life of 27.5. But, if you buy a fridge, you can take bonus depreciation on it. ( or expense it under de minimus safe harbor if below 2500).

But, it does not mean that the gut rehab qualifies for a bonus depreciation. The work done on the property before placing it in service has to be added to the basis of the property (again unless qualifies under safe harbors). If timed properly you could possibly deduct some cost of rehab. Eg.Buying some appliance after renting it out.

For condo 2- When you buy a property. the purchase price is for the entire house. The entire building(with its appliances) is depreciated under 27.5 years. You can assign the purchase price to an appliance via cost seg study for higher depreciation. For just one condo, the cost of the cost seg will probably exceed your tax savings via depreciation. Your professional can also perform a basis cost seg for you, but I dont believe it will be very beneficial.

Ed Matson · Answer

@Ashish Acharya, Thank you for your clear and complete comments. They are very useful. Maybe I misunderstood the webinar guest. I really appreciate your reply.

Bonus Depreciation Applicable to Rental Condos?

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