Concrete patio deduction

[icekitsune]

Hi all, I posted a question here before and it was helpful. I have a situation where I'm not sure how to apply. I have a townhouse that I own fully and is a rental property . I decided to replace a small area outside in front of the house from brick to concrete so the weeds wont' get through on the rental. Costs about $1950. It asked me about section 179 and the site states " Real property (e.g., land, building, sidewalks, landscaping, parking lots" isn't deductible under 179. I just want to double check

it referenced if it was used 100% and if its considered a "acquired new property" which i'm not sure. I mean its new and my renters walk on it daily.

I'm unsure if its section 179 deductible and there also a 15 year recovery which listed improvement on land which included fences..any help would be appreciated. Thank you and stay safe

[DawnC · Accepted solution]

You cannot claim the section 179 deduction for property held to produce rental income. This would include any rental assets along with capital improvements.  How do I handle capital improvements and depreciation for my rental?

Land and land improvements do not qualify as section 179 property. Land improvements include swimming pools, paved parking areas, wharves, docks, bridges, and fences.  Land improvements have a 15 year recovery period.  

For more information regarding depreciation please refer to the following publication:

IRS Publication 527 Residential Rental Property

[AmeliesUncle · Accepted solution]

I would probably consider it a "land improvement".  Although it would not qualify for Section 179, it qualifies for 100% Bonus deprecation.  

And yes, it is "new property".

[Carl]

 Residential Rental Real Estate just flat out *DOES* *NOT* qualify for the SEC 179 deduction. Period. End of story.  (many elements of "commercial" rental property does qualify for SEC 179 - hence that's why you have the question.) At best, a residential rental asset may qualify for the 50% special depreciation allowance,

In your specific case, the improvement does qualify for the 50% Special Depreciation allowance. (SDA). But I can tell you right now that it will "NOT" make one single penny of difference to your tax liability. So I would suggest you not waste your time with it.  You should instead depreciate it over the standard 27.5 years.

Remember, rental property practically always operates at a loss "on paper" at tax filing time, with ever increasing losses that just get carried over year to year. So any form of accelerated depreciation on the property "will" *not* *help" tax-wise in any way, shape or form. But it *will* hurt tax-wise if you sell the property before reaching and passing that 50% mark of the normal 27.5 year MACRS depreciation.

Additionally, even though this property improvement cost you less than $2,500, it does not qualify for the safe harbor act, since there is no question that it is "in fact" a permanent and physical part of the real estate property now.

[AmeliesUncle]

@Carl   Sorry, but almost everything you said was wrong.

Although you are right that the improvement to the residential property itself would not qualify for §179, assets inside of it (such as appliances) may qualify in certain circumstances.

The Special Depreciation Allowance is 100%, not 50%.

If your income is under $150,000, you certainly CAN use at least part of the loss, and some rentals DO operate at a profit.  It is irresponsible to tell people it won't make a difference on their tax return when in MANY cases it WILL reduce their current year taxes.  Just because your income is high enough that you can't use the loss doesn't mean that every landlord's income is over $150,000.

And the De Minimis Safe Harbor DOES apply to the improvements to the permanent and physical part of the real estate (*IF* they otherwise qualify for the De Minimis Election and they actually make that election).  There is no restriction in that regard against for real estate.

[Carl]

Residential rental real estate does not qualify. Appliances are not classified as residential real estate.

Rental property, especially if there's a mortgage on it, rarely operates at a taxable gain on paper at tax filing time. That doesn't mean its impossible. For residential rental property to operate at a taxable profit is possible, but not all that common. I've only seen three situations where residential rental property actually operated at a taxable profit.

1) The property is paid off, therefore no mortgage interest deduction. (I have one of my rentals like this.)

2) The property and any separately listed assets are completely depreciated.

3) The cost basis of the property was so low, it was almost impossible to "not" show a taxable gain. I saw this on a rental property that was foreclosed on and someone got at auction for less than $8,000. Were it me, allocating $1K for the land and the remaining 7K for the structure would have made it hard to not make a taxable profit - even if placed in service in the last quarter of the tax year. (assuming it actually got rented out and produced income in that last quarter.)

There is a fourth possibility, but I've never seen it. That's where the rent charged is at least 3 times or more higher than the mortgage payment.

For some reason, I commonly get the percentages for SEC179 and SDA flipped. As you're aware, the rules for both are rather complex. But when AGI figures into the equation, the TTX program seems to handle it just fine. I've never actually tested for all possibilities though, as like you, I'm just not that bored.

Oh btw - your assumptions about my income are wrong. Sure wish you were right on that front though. 🙂

[AmeliesUncle]

But the main point to keep in mind is that if your income is under $100,000, then up to $25,000 of losses can be used (assuming you "actively participate", and the $25,000 gradually gets phased out as you income gets up to $150,000).  With multiple rentals (like you), that may be 'maxed out', but most landlords with one or two rentals would not max that out.  That means in MOST cases, a larger deduction WILL save taxes on the current tax return.   And even if it does need to be carried forward, EVENTUALLY that can be used.

[trish8]

thanks for the clarification. I always have a profit for my rental, owned 30 yrs and paid for so I do need the depreciation and if it allows bonus appreciation, more the better.