For a rental property kitchen modernization should kitchen cabinets and built-in appliances be depreciated at the same rate?

[DanielV01]

They are different rates.  When you remodel a rental home, this is considered an improvement, (as compared to a repair) because it increases the value of the rental.  Because of this, you must capitalize (depreciate) them.  However, each item is depreciated in its own category.  Click on this IRS link for more information:  Additions or improvements to property.

You will notice on that link that appliances fall in a 5-year class whereas cabinets are in a 7-year class.  That means they are depreciated at different rates.

[ipc1]

The reference in the IRS link is for file cabinets, not kitchen cabinets, how do you know kitchen cabinets and file cabinets have the same depreciation?
From IRS reference:
7-year property. This class includes office furniture and equipment (desks, file cabinets,

[DanielV01]

Same chart says that an item without a specific class is 7-year property.

[wbarkho]

I lived in my rental property for 13 years before starting to rent. The unit was remodeled with new cabinets, granite countertops, and appliances when I purchased. I can get a rough idea of fair market value for the appliances. How can I get fair market value of cabinets and countertops after 13 years? 

[Critter]

Ok ... your total cost is used for the depreciable basis ... you cannot breakout 13 year old appliances as they have a zero basis after all this time.  

[AnnetteB6]

@wbarkho

As you stated in your question, the unit was remodeled when you purchased it.  Therefore, the purchase price of your unit includes the costs of the new items added when it was remodeled.  You do not break these out separately for depreciation since the cost of the cabinets, countertops, and appliances was already included in your total purchase price.  When you enter information for depreciating the rental unit itself, these items are also being depreciated as part of the rental unit.

Whenever these items are replaced in the future, you will depreciate them as separate assets tied to your rental property.

[apdickinson]

Hi Daniel,

Thanks for the guidance but I'm not sure how to enter this into the turbo tax program.   I have rental properties and I can add most assets fine.   I'm given the option 1) Residential Real Estate, 2) Appliances/Carpet/Furniture  and 3) Land Improvements.

If I add a refrigerator costing $1500, I select #2 Appliances, and then Turbo Tax will allow be to fully expense since under $2500.

However, I'm now adding a new bathroom vanity top.   The cost is $970.   How do I do that?

If I select #1 is spreads it out over 27.5 years.

You mentioned there is a 7 year all other category per the IRA, but I don't see that as an option on the program.   

Thanks, Al

[Carl]

So many people are of the mistaken (and wrong) belief that depreciation is a deduction they get forever. It is not. At some point all depreciation taken on any asset must be recaptured and you *will* pay taxes on that recaptured depreciation in the tax year it is recaptured. Depreciation recapture is required by law when any one of two things happens in your life.

1) You sell or otherwise transfer the property to another.

2) You die.

Additionally, in the tax year of recapture, that recaptured depreciation is added to your AGI and has the potential to put you into the next higher tax bracket - meaning that you could end up paying more in taxes, than the total amount your "saved" in taxes over all those years of depreciation.

Appliances are depreciated over 5 years. So listing out a $500 dishwasher as a separate appliance means you only get to deduct $100 a year. That will make absolutely not one penny of difference to your tax liability. If you elect to take the SDA (Special Depreciation Allowance) that allows you to deduct the entire cost in the first year the asset is placed in service, then it *might* make $5 of difference (if you're lucky) in that one year only. Big deal. Then when the appliance breaks and needs to be replaced, you've created $25 worth of your time and paperwork to "dispose" of that asset, to "maybe" save $5 on your taxes.

If *you* *personally* did not purchase the appliances and renovate the kitchen *AFTER* the closing date of the property, then you have absolutely no separate assets to list other than the rental property itself, which gets depreciated over 27.5 years. That's the law.

Your attempt to save nickles and dimes now, will cost you quite a few Jackson's and Grant's later.

[tagteam]

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@apdickinson wrote:

However, I'm now adding a new bathroom vanity top.   The cost is $970.   How do I do that?

If I select #1 is spreads it out over 27.5 years.

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You can use the De Minimis Safe Harbor Election for that as well. 

You should see the screen for that election immediately after the screen that inquires as to whether you have assets that can be depreciated. 

Otherwise, you have to go with depreciation over 27.5 years as an improvement.

[tagteam]

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@Carl wrote:

Depreciation recapture is required by law when any one of two things happens in your life.

1) You sell or otherwise transfer the property to another.

2) You die.

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If a taxpayer owns the property individually, and in severalty for example, previously accumulated depreciation disappears at death; there is no recapture.

[Anonymous]

depreciation recapture when a person dies? 

2) You die.

[tagteam]

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@Anonymous wrote:

depreciation recapture when a person dies? 

2) You die.

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That second part is definitely inaccurate as is the first since the "otherwise transfer the property to another" would include 1031 exchanges and gifts, both of which do not require immediate depreciation recapture.

[IBB]

I don't see any support to treat kitchen cabinets as 7 year property.  They are attached to the building

[tagteam]

@IBB 

See https://www.irs.gov/publications/p527#en_US_2020_publink1000219255