2012 Tax Changes for Rental Property Expenses ?

Question

Hi  BPers,

I saw an accountant state that [b] rental property maintenance expenses 
for   plumbing repairs and painting may have to capitalized and depreciated over x years instead of a straight expense[/b] in the year it is done.

I know that putting in carpet should be depreciated.

So, if you buy a new stove, dishwasher, refrigerator, heater, a/c  then these should be depreciated too ?

Is this something new for 2012 ?
Am I understanding this correctly ?

Please advise.

Best, LA Guy

Account Closed · Answer

Temporary regulation went into effect January 2012.  The regs have changed some of what you might think of as repairs.  One example in past years you could expense roof work done that say repaired 90% of the roof.  In 2012 it is not likely that that work could be expensed as repairs, but would require being capitalized and depreciated over 27.5 years.

Danny Ng · Answer

The IRS website provides guidance on how to apply depreciation for your rental property (MACRS for property serviced after 1986).  It provides buckets on how to depreciate your building, furniture, appliances, etc.  You also need to factor in Conventions (mid-month, mid-quarter, half-year) to calculate your depreciation correctly.

Check out IRS' Publication 527 for more details.

Richard Chang · Answer

Steven Hamilton II and Scott W.

Thanks guys,  I guess I need to talk to the CPA to see exactly what items may be subject to depreciation now that could be expensed in the past. Since the CPA's newletter mentioned painting and plumibing, it kind of threw me for a loop.
Of course painting the outside of the house is treated differently from painting the inside.

Best, LA Guy

Steven Hamilton II · Answer

Hello Richard Chang,

Extensive repairs/replacement must be capitalized and depreciated over 27. years as they are structural components.

Stove, dishwasher, refrigerator, are depreciated over 5 years, Furnace and AC are depreciated over 27.5 as those too are structural items because the house would otherwise be an unlivable shell.

This is definitely not new at all.

Scott W. is correct in what he said.  Most items are depreciated with the exception of repairs to said items. Painting the walls is a normal maintenance item; where as skim coating is not and must be depreciated.

If you have any specific questions don't hesitate to ask here as I'm sure many have the same question.

-Steven

Scott W. · Answer

generally speaking, things that are "stuck" to a property are depreciated (ie, windows; fence, roof, fridge, toilet, etc) over different lengths of time. if a tenant trashes the carpet before its depreciation is used up, you can expedite the depreciation of the old carpet & renew it with the new.

repairs are different - these are expensed the year you use it. if you replace a roof, you depreciate it (20+ years). but if you repair a leaky roof, you expense it.

I'm no accountant either. another thing I like to do is call the IRS direct with questions. I don't take my accountant's words for naught; and I don't take everything said on BP as the Bible either.

Rob K. · Answer

I'm no accountant, but these items have always been depreciated over a period of years.