Rental flooring improvements vs repair

[Raj_R]

Hello

I have a rental property and replaced carpet with LVP, costing close to $9K.

If I'm right, I can't show this as repair/expense. Instead should be 'improvement'? (more than $2500)

Now going through 'Improvement' questionnaire: Kinda confusing to think flooring as asset and answer questions like 'business usage, when asset was purchased' etc

- 'Rental real estate property' -> 'Appliances, carpet, furniture' (assume flooring same as carpet??)

- Next screen:, describe the asset (i entered 'flooring'), total costs. For 'Date Purchased': is this flooring installation date?

- Next screen: 'I purchased this asset' (doesnt make sense when talking about Flooring upgrade) and used 100% for business since acquired (does it mean i use this 100% for business since 'date of installation?')

After all these, it shows 'Section 179 deduction' options. 

This 'Additional options available only if original use of property begins with you' means, the rental property was first used by me for personal yes before putting into rental market?

I dont see a significant different in tax owe if i choose 100% 179 deduction (9k) or if do partial deduction (3k 2024) and rest spread through years.

[PatriciaV]

1) This rental property upgrade may qualify to be fully expensed under the Safe Harbor Election for Small Taxpayers. TurboTax will ask you about this election at the beginning of the Assets/Depreciation section of your Rental Property. If you choose this election, you can expense up to $10,000 in costs that would otherwise be depreciated over a very long time.

2) Flooring improves the property as is considered an "improvement" asset for depreciation. 

3) Date purchased would be the date the installation was completed and ready for use.

4) Yes, you have used it 100% for your rental business since it was installed.

5) Since you are the original owner of the flooring, you may take the Section 179 deduction up to the allowable limit.

Claiming the Safe Harbor Election or the Section 179 deduction will offset your rental income this year. Since depreciation can't create an operating loss, any unused portion will be carried over to offset future income.

If you choose to claim a portion this year and spread the rest over the asset's useful life, your current year income will be reduced a lot this year and a little for a very long time. 

The choice between writing off the full amount and claiming depreciation expense over many years depends on your estimate of 1) how long you expect to keep renting the property and 2) how much income you expect over that same period.

[Raj_R]

Thank you @PatriciaV very much for useful info.

'Section 179 deduction' options. 

This 'Additional options available only if original use of property begins with you' means, the rental property was first used by me for personal use before putting into rental market?

I still wonder why i don't see significant difference in tax owed when i deduct all 9K improvement now or partial.
May be I hit some limit something for this year and can carry over next year?

[PatriciaV]

Original use means you purchased the asset new and placed into service. In other words, you didn't buy it used.

Yes, it's possible a portion of your passive loss was suspended this year. When you have income next year, the remaining deduction will offset that income.

[Raj_R]

"Original use means you purchased the asset new and placed into service. In other words, you didn't buy it used." Here you talking about the asset (aka flooring upgrade). Makes sense.

But the questionnaire was asking about property: "Additional options available only if original use of property begins with you". This could use better wording honestly:)

I thought its asking if the rental property (not asset) begins with me and got confused.

Think you mean to say Property/Asset are the same here (flooring)?

[PatriciaV]

You are right, the wording isn't the best. But, no, the question pertains to the asset you are adding (the flooring). Section 179 deduction is not available for the rental (residence) itself.

[donnalcop]

One significant limitation on Section 179 was that it WAS never been available for rental property owners to use to deduct the cost of PERSONAL PROPERTY used in residential rental units. In a major victory for landlords, the TCJA eliminated this restriction starting in 2018...personal property only, flooring is NOT personal property; it is part of the building, i.e., Real Property.

[donnalcop]

One significant limitation on Section 179 was that it WAS never been available for rental property owners to use to deduct the cost of PERSONAL PROPERTY used in residential rental units. In a major victory for landlords, the TCJA eliminated this restriction starting in 2018...personal property only, flooring is NOT personal property; it is part of the building, i.e., Real Property.  This means 27.5 years depreciation.

[donnalcop]

Publication 527 (2024), Residential Rental Property -

"Improvements. You must capitalize any expense you pay to improve your rental property. An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use. Table 1-1 shows examples of many improvements.

"Table 1-1. Examples of Improvements

........Flooring"

https://www.irs.gov/publications/p527#en_US_2024_publink[phone number removed] 

[KrisD15]

Section 179 Deduction cannot be used on passive (rental) property, it only applies to business property.

If the rental is treated as a business, Section 179 can be used, otherwise it cannot. 

[donnalcop]

Also as stated earlier, Sec. 179 can only be used to write-off "personal property", not real property. Therefore you've got to determine whether the new flooring is personal or real.

New carpeting would be personal property (not real property) and therefore eligible for Sec. 179 treatment provided the taxpayer satisfies the "trade or business" requirement sec. 162 as you point out.