Should major appliances purchased prior to conversion to rental be recorded in the I-Residential Rental cost (27.5 yrs) or as F asset (5 years)? Mixed advice on forum.

[russtr]

I'm going off of IRS Pub 527 that says you must increase basis by cost of improvements made before placing property into service and several outside posts I've read that stated Appliances installed before converting to rental are generally depreciated with the whole building (i.e.: 27.5 years) and only those purchased after conversion can use the 5 year depreciation.  However, Turbo seems to be more geared towards me adding separately as an asset, allowing me to enter the earlier personal purchase date and later date of service.  

Also, Is there a form where I can I see my calculated adjusted cost basis at conversion?  If I do add separately as asset, will it get added into my basis? 

[TaxGuyBill · Accepted solution]

Appliances are still depreciated over 5 years, even if they were installed before converting it to a rental property.

They are not an "improvement" to the house itself.  They are still separate assets.  The TurboTax interview should cover it, but you will be depreciating the Fair Market Value of the appliances when converted to rental usage, not the original purchase price.

If you print (or create a PDF) of ALL worksheets, you can find the 'Depreciation and Amortization Worksheet' (it is the sideways-looking worksheet/spreadsheet).  That will have all of the information about the depreciation, including the depreciable basis.  The depreciable basis for some items (such as your appliances) will be based on the Fair Market Value, not your actual Cost Basis.  In those cases, that worksheet does NOT show the "Cost Basis", so you must keep track of that for when you sell the property.

No, the separate appliances are not added to the basis of the house itself because they are separate assets.  When you sell the property, you may need to allocate the sales price between all of the assets.

[leancoolguy]

How do we calculate fair market value for appliances (stove, microwave etc) bought before the property was converted into a rental?

[TaxGuyBill]

@leancoolguy   You need to figure out what the 'used' appliances would sell for.  You can check eBay, Craigslist, garage sales, thrift stores, etc.  It is often difficult to come up with solid documentation, but you can usually come up with a good estimate.

[dotnroy]

Could you site the reference you used for your response regarding depreciating pre-existing appliances? I have searched all over the IRS website and I cannot find the answer. I thought you could only  depreciate appliances placed in the home after converting it  to rental property. Do you not add the FMV of the pre-existing appliances to the cost basis of the home?

[johnbenabe]

I purchased a house in November, 2009 and used it as my primary residence until December, 2020. In January 2021, I rented the property which has been rented ever since. When I purchased the property the appliances were new and their cost included in the purchase price of the property. At the time of purchase, I didn't get a breakout of what each appliance cost.

My question is whether I should estimate the costs of the appliances and remove them from the cost basis of the property for purposes of depreciation? If I remove them and depreciate the appliances separately, would I need to use the current fair value of the property as the basis for the depreciation? I am not sure if they are worth anything since they are 13 years old. Thanks!

[SantinoD]

There is no need to remove the appliances from the cost basis for the purpose of depreciation. Since it was included in the purchase price then that means it is also included in the basis of the property.

If you purchase any new appliances going forward, and you are still renting the property, you can list those appliances as a separate asset for depreciation. 

@johnbenabe