You can use the de minimis safe harbor election in this instance. There will be no immediate ramifications if you keep the property subject to the safe harbor election.
However, Treas. Reg. §1.263(a)-1(f)(3)(iii) states that the property is not treated upon sale of other disposition as a capital asset under section 1221 or as property used in the trade or business under section 1231. Therefore, if you ever dispose of the property, through a sale or other disposition, your basis in the property would be zero and any gain would be ordinary gain (i.e., not capital gain).
First, thank you for your quick and helpful reply! Second, so if I just kept the property after (never sold) and just disposed of it when finished for no financial gain nothing would happen. However, if I say sell a couch or something for $500 I would have to report that $500 on my taxes as "ordinary income" and pay my income tax bracket amount on that "gain", not the capital gains tax rate.
In addition to the other comments (which are correct) keep this in mind also.
When claiming furniture as a rental asset, via safe harbor or not, your state "may" consider that to be a different type of asset that is subject to a tangible property tax for each year that furniture is used in the rental property to produce income. So it's perfectly possible for what you "save" on federal taxes by claiming it as such, you'll just end up paying to the state *EVERY* *YEAR* in the form of a tangible property tax. In some states (my state of FL included) it's the county that imposes a tax *every* *year* on any and all tangible property used in the production of income.
Also, when you convert a primary residence (or other personal use property) to rental property you have to update your insurance policy on the property. A homeowner's policy does *NOT* cover business use of the property. Having converted the property to residential rental real estate makes it business use property now. So you need to update your policy to what is called a Rental Dwelling Policy.
Generally a rental dwelling policy only cover's the structure(s) on the property and also include a minimum of $300,000 of liability coverage. It does *NOT* cover the contents inside the structures unless you *specifically* and *explicitly* pay for content coverage. This is because the contents inside a rental property are usually owned by the tenant, and it's the tenant's responsibility to have a "renters insurance" policy.
So in a nutshell, your standard "homeowner's insurance policy" will not cover rental property since it's not being used for "personal use" purposes as outlined in the policy. If you have a claim that claim will be denied and there's nothing you can do about it. So make sure you contact your insurance agent and update the policy. Also let the agent know if you want to insure the contents within the property that you actually own.
I can't stress enough the importance of this; especially if you have a mortgage on that property.