I remodeled the kitchen of my rental in 2018. Can I use section 179 to deduct the the kitchen cabinets? Or depreciate over 27.5 years? What about the new appliances?

[wandys]

I talked to two different TurboTax EA today via Live Expert:

The first one told me to go ahead and apply Section 179 to the new kitchen cabinets and appliances.

Then when I got to Final Review in TurboTax, I got an error saying Section 179 cannot be used on Residential Real Estate (Items that would normally be depreciated over 27.5 yrs)

So I contacted Live Expert again, and the second EA told me that I cannot use Section 179 for kitchen cabinets. Is that right?

And he said I can just expense the appliances since it is under $2500 (i.e. I don't even need to bother listing it under new assets). Is that right?

I asked how many years to depreciate for bath vanity cabinet vs kitchen cabinet. He didn't know and after searching on Google, he said 27.5 for bath vanity, and just 5 years for kitchen cabinets. Is that right?

And I just realized, if kitchen cabinets is just a 5 year item per the second EA, then it is not residential real estate, which means ... I can use Section 179 to deduct it fully in a year?

Since I am getting different answers from different TurboTax EAs I am not confident of either answers. Thank you for your help here.

[Anonymous · Accepted solution]

179 can't be used on residential rental property.  the TCJA changed the definition of qualified real property to qualified improvement property QIP must meet the following test 168(e)(6)(A)

the  improvement is to an interior portion of a building that is nonresidential real property 

but if you look upon the new cabinets as being a repair, then it can be expensed.  (if audited the IRS might disagree) 

there is even a safe harbor election for small taxpayers ( average annual gross receipts for the last 3 years of $10 million or less) which allows them not to capitalize improvements to a building if the total amount paid during the year for repairs, maintenance, improvements and similar activities on the building (unadjusted basis must be $1 million or less)  do not exceed the lesser of 1) $10,000 or 2) 2% of the buildings unadjusted basis.    some versions of TT do not contain this election which must be included with your return.  

this means that if you make the election and are within the $ limits, the IRS can't make a change if audited.  it doesn't prevent you from expensing items you consider repairs if you exceed the $ limits, but as stated at the top the IRS could make a change 

now as to appliances 

5-year property. This class includes computers and peripheral equipment, office machinery (typewriters, calculators, copiers, etc.), automobiles, and light trucks. ?This class also includes appliances, carpeting, and furniture used in a residential rental real estate activity.

rather than 179 you can take 100% bonus depreciation.     whether to use 179 or bonus depends on several factirs.  179 can't exceed the profit before the 179 deduction while bonus is not limited.  however, if you are subject to state taxes and can use all the 179 it might be better than bonus because many states limit bonus but not 179. others limit both.  

one other thing to consider but you didn't mention is the qualified business income deduction. assuming you only have 1 single family residential rental,   the IRS regs on this say you (and people or businesses you hire to perform services on the property)  should spend 250 hours or more in certain activities with regard to the property during the year.  you probably qualify but I am guessing.

next year the IRS want lessors to maintain documentation to prove the hours requirement was met.  (good luck on this  - say you hire a landscaper - are you going to watch them and run a stopwatch.   

[wandys]

Thank you for such complete and clear information!  I did ask the EA regarding QBI, and both said yes I can elect QBI because I am doing the property management myself, but they did not mention the 250 hour requirement!  I just googled the 250 hours and read more about it -- it says that IRS requires 250 hours "for each enterprise".  We have multiple properties, and I have set them up as in TurboTax as individual properties. Does that make them individual enterprises?  Would I need to combine all locations together under 1 property in order to meet the 250 hours requirement?

[arempe-bbg]

Or can I make an election to treat all interests in my 20 RE activities and meet the 250 hour requirment