I am in the process of buying a STR lakehouse and was wondering if the furnishing costs are tax deductible? I'm talking furniture, kitchenware, etc - everything I need to have in place to rent it out. I would expect yes but has anyone had experience with this?
@William Brock Yes absolutely. Keep all these receipts for your CPA.
He/She should be able to do a cost segregation and depreciate these faster than the house.
Normally a cost segregation study will have its scope limited to items that are affixed, such as carpeting, window coverings, cabinetry, etc. Fpllowing IRS guidance, these studies should be performed by a qualified firm, which normally is not an accounting firm unless they have hired some engineers and have incorporated this specialty into their practice. (Unusual, except for larger CPA firms.)
A cost segregation company may include certain items that are not affixed within the study, but you should discuss that in advance to see if they will in fact do that. The techniques used to produce cost segregation studies are based on construction cost engineering and estimation, and they may or may not have expertise in assigning costs to some of the assets you have in mind. In my past experience with apartment and hotel properties, cost segregation studies sometimes included items such as kitchen appliances. But that was about as far as it went.
All of that applies to assets already in place. If you are buying new furnishings, the easiest way to handle deductions for them (whether as expenses or depreciable assets) is just to keep your receipts. If they are truly "furnishings" that have a long enough economic life that they do not qualify for expensing then you may have to depreciate them. Usually furnishings have a short life for depreciation purposes (5-7 years).
However, if you talk with your accountant, they may advise you that some of those items could qualify for bonus depreciation, which would enable you to deduct their costs in the tax year you acquired them. I agree with John, above, when he says your accountant could probably handle that. You only need a cost segregation company when it comes to the building, land improvements, and items affixed thereto.