Rental Depreciation

[SN2007]

I purchased a garbage disposal, dishwasher and HVAC unit (A/C) for the rental.  Are these correct information to enter for each appliance for depreciation?

            Dishwasher

                    Asset Type:                            Tools and Machines

                    Depreciation Method:         Double Decline Balance   (use Section 179 if I want to deduct everything for the taxyear)

                    Life:                                            7

                    Depreciation Convention:     Bought July 12, 2020 (what do I use, 1QT?)

            HVAC

                    Asset Type:                                Tools and Machines

                    Depreciation Method:            MACRS Straightline

                    Life:                                             27.5

                    Depreciation Convention:      Bought 6/10   (not sure what to use here)

I also bought a garbage disposal for $122 for a rental.  Do I need to depreciate this item or could I just expense this under 'Supplies'?

Thanks for your forthcoming response.

[ColeenD3]

Yes, you can expense the garbage disposal, but if you choose the safe harbor election (described later) you can include both

the dishwasher and the garbage disposal.

When you started the depreciation section, you should have chosen assets. Next, apart from the building itself, you would choose:

-Improvements to rental buildings Learn More

-Appliances

-Furniture

The dishwasher is an appliance. You have the choice of depreciation or the safe harbor (expensing) which begins on the screen:

Did you buy any items for any business, rental property and/or farm that cost $2,500 or less in 2020?

Let's see if you can deduct these items as expenses.

If you choose to depreciate, answer no and continue to the screen:

Rental Real Estate Property

Land Improvements

Real Estate Property

Rental property appliances, carpet, furnishings

You will arrive at the asset summary screen which properly gives a 5 year useful life. Renters can be hard on appliances so the property is give a shorter life.

The HVAC is considered part of the house (rental real estate) and, yes, has a 27.5 year life.

[harry7]

In August 2020, I replaced a tub/shower with a shower because my tenant has disabilities at a cost of $8900 to provide a safer bathing option for him.  TT won't let me take a section 179 for this, why?

Harry

[JeffreyR77]

There are a couple of reasons why TurboTax may not be allowing the Section 179 deduction. 

First, does your rental property have $8,900 of net income to absorb the accelerated depreciation of the shower deduction?  A Section 179 deduction must have net income to offset the deduction. 

Second, have you formally elected the safe harbor to have your rental real estate to be treated as a trade or business for the purposes of Section 199a?  To be eligible to do this you must meet the following requirements:

• Separate books and records are maintained to reflect income and expenses for each rental real estate enterprise.
• For rental real estate enterprises that have been in existence less than four years, 250 or more hours of rental services are performed per year. For other rental real estate enterprises, 250 or more hours of rental services are performed in at least three of the past five years.
• The taxpayer maintains contemporaneous records, including time reports, logs, or similar documents, regarding the following: hours of all services performed; description of all services performed; dates on which such services were performed; and who performed the services.
• The taxpayer attaches a statement to the return filed for the tax year(s) the safe harbor is relied upon (tax return must be printed and mailed in)

[Carl]

In August 2020, I replaced a tub/shower with a shower because my tenant has disabilities at a cost of $8900 to provide a safer bathing option for him.

Since the cost was more than $2,500, it doesn't qualify for safe harbor. Additionally, the correct classification for this asset is "residential rental real estate", since there's no question that it becomes "a permanent physical part of" the structure. It gets depreciated over 27.5 years.

TT won't let me take a section 179 for this, why?

Because residential rental real estate does not, and never has qualified for a SEC 179 deduction. Now it "may" qualify for the Special Depreciation Allowance, which is completely different from SEC 179.

[SN2007]

what is the difference between safe harbor and section 179?

Are depreciation handled differently for federal vs state?

[Carl]

Basically, SEC 179 property can be fully depreciated in the first year. Residential Rental Real Estate does not qualify as SEC 179 property. Period. You can google the question yourself and find many explanations. But I only confirm to the ones on the irs.gov website.

Safe Harbor applies to those things that would otherwise qualify as a depreciable asset. Under the SH rules. Basically the rules say that some (not all) items that cost less than $2,500 can be expensed in the year they are purchased, instead of being depreciated. There are pros and cons to expensing an item that could otherwise be depreciated. The rules also have some "grey areas" where things aren't clearly identified as qualifying for SH or not.

[SN2007]

Is  safe harbor (expensing) same as 100% bonus depreciation?  How will this impact the Section 179 deduction?

Thanks

Sherry

[SN2007]

You suggested life of disposal and dishwasher would be 5 years.  H&R Block told my friend they set it to 7.  So, so is the life picked randomly?  No place to get the exact life years?

How does one select depreciation method?  What is the difference between the 5 different methods available?

[Irene2805]

The IRS determines the useful life of an asset.  Asset classes, recovery periods, and instructions can be found in IRS Publication 946 - How to Depreciate Property. Appendix B, which starts on page 98.  You can also find a discussion of depreciation methods.

[SN2007]

Thank you.  This link does not work. 

Thanks

[Irene2805]

The link is correct but apparently the IRS is still updating the PDF version of the publication. (They were going to just keep the 2019 version but I guess they decided to revise.)

You can access the 2019 HTML version of Pub. 946 by clicking here.  On the left side of the screen is a table of contents where you can click the link to go to the section you're interested in.

@SN2007