Bathroom remodel depreciation schedule for fixtures

[wrangler18]

I remodeled 2 bathrooms and wanted to get some advice on depreciation schedules for bathroom fixtures.

Tubs, Shower glass, Toilets, vanities, Medicine cabinets.

I believe the tile needs to be depreciated over 27.5 years.

I ask this because when I read up on Kitchen remodels, I discovered that Appliances depreciate over 5 years and cabinets (maybe countertops too) depreciate over 7 years.  Cabinets fall under Furniture which depreciates over 7 years.

So I wonder if the same logic applies to bathroom fixtures.

Thanks!!!

[MaryK4]

If it is a complete remodel of the bathroom, you would use the 27.5 years.  However, if you can use cost segregation you can use the 5 year schedule, or (even better) if you qualify for the safe harbor, you can expense some of the costs.  See What can I expense or depreciate with the business safe harbor election? and the links in the link for full explnations.

[wrangler18]

Thank you Mary!  The link to the Safe Harbor Election was very informative. 

[sandim25]

The program is listing my total kitchen remodel (completely gutted) as a 5 year depreciation instead of 27.5. How can I fix that?

[wrangler18]

There's a question in Turbo tax Property Assets walk thru that says "How would you like to categorize this item"?   You chose "Appliance's carpet and furniture"  instead of Residential real estate.  The RRE election will allow you to depreciate over 27.5 years.

[Carl]

Be careful here. If I were you I would group all my remodel costs together as a single property improvement, provided they were all placed "in service" on the same date. (When the work was done is irrelevant. What matters is the "in service" date).  Then classify it as Residential Rental Real Estate and depreciate over 27.5 years.

When you classify things differently for a shorter depreciation period, be it equipment or furniture, you may open yourself up for the "tangible property tax" on those items. A few states, and a fairly large number of counties and lower level taxing authorities impose a yearly tangible property tax on anything they clasified as "equipment" that is used in the production of income. That tangible property tax is assessed and paid every single year the "equipment" is in service. So what you may think you "save" by depreciating it faster, you end up paying to that lower level taxing authority as a tangible property tax.

Don't think for a minute you can get away with just not reporting it to that lower level taxing authority either. When you sell the property you have to report/record that sale at your local county courthouse. That's where your "equipment" will come to light. If you haven't reported it in the past, then when they catch it upon recording the sale (they will catch it to) the sale will not be recorded in most cases, until all the back taxes and associated fines and penalties are paid. That will come out of any gain you realized on the sale, "if" you want the title transfer to go through. If you sold at a loss and actually have no money to pay those back taxes/fines with, then the title transfer will not be completed.

So that's why I recommend that if possible, you group things together, classify it as RRE and depreciate over 27.5 years.

Remember, regardless of how you classify it and regardless of the depreciation schedule used, that depreciation is not a permanent deduction. You have to recapture that depreciation and pay taxes on it in the year you sell the property. That recaptured depreciation also adds to your AGI for that year, and has the potential to bump you into a higher tax bracket.