Rental Expenses

[nanahackett]

My bathroom, kitchen and basement were taken down to the studs (walls, ceilings and floors) on my rental property. Everything that was replaced has a line item for cost and installation fee. Can I include the installation fees on everything as an expense on my taxes? Big ticket items like air condition system, plumbing and storm windows and doors I know are considered capital improvements. Can you explain how I handle the depreciation?

[AnnetteB6 · Accepted solution]

The grand total of the costs incurred to rebuild the rooms should be depreciated as a capital improvement and component of the residence.  None of the costs should be deducted as an expense on the current year return.  

You can divide the costs by the rooms that were rebuilt or include a single total for the 'remodel'.

When you add the Asset (remodel) for your rental property, choose Rental Real Estate Property as the asset type.  You will be asked to enter a description and cost, and the cost of land.  Leave the cost of land blank and enter the other information.  This will depreciate your remodel cost over the same recovery period as the house itself (27.5 years).

@nanahackett

[Carl]

The grand total of everything you have mentioned in your post is a property improvement. No question about it. If all of your property improvements were placed in service on the same date, then you can just total up all the costs and enter it as a single item in the Assets/Depreciation section. It's classified as Residential Rental Real Estate and depreciated over 27.5 years starting on the date the asset was placed in service.