I spent around 35k outfitting my rental, kitchen appliances and fixtures, bathroom fixtures, windows and blinds, floors, countertops and more. In theory I want to depreciate all in 2021,
You can classify the entire cost as residential rental real estate and just depreciate the entire $35K over 27.5 years. That is, assuming everything is 100% business use. Remember, a percentage of the original purchase price of your house., equal to the percentage of floor space that is exclusive to the renter is also depreciated over 27.5 years.
Example:
You paid $100,000 for your house when you purchased it years ago. $75K is allocated to the structure with $25K allocated to the land. The converted garage is 10% of your total floorspace. You'll depreciate 10% of those figures (structure only of course). So $7.5K is allocated to the area being rented and gets depreciated over the next 27.5 years, and $2.5K is allocated to the land.
Next, you spent $35K renovating the garage. Assuming that renovation is 100% business use, the entire $35K is allocated to the renovations with nothing allocated to the land and the entire $35K is depreciated over the next 27.5 years.
Now down the road when you sell the property you'll have to recapture all of that depreciation and pay taxes on it. The math will be much, much simpler. Just keep that in mind.
Another possible route:
Generally speaking, anything that does not become a permanent part of the structure may fall into a category other than "residential rental real estate". For example, the stove and refrigerator. If those items are invoice separately and the cost is less than $2,500 per invoiced item, then you can just expense them under safe harbor diminimus and be done with it. Whereas something such as kitchen cabinets are considered "a permanent part of" the structure. So those are classified as residential rental real estate and depreciated over 27.5 years.
Now one grey area is the hot water heater. For example, I paid $800 for a new one in one of my rentals. The way I interpret the IRS Pubs is that since the HW heater becomes "a permanent physical part of" the plumbing system, which is already "a physical part of" the structure, it has to be classified as real estate and depreciated over 27.5 years. Depreciating $800 over that period of time doesn't make one single penny of difference to my tax liability. But since this is a "grey area" in the pubs, I look at it from the IRS perspective.
