The depreciation for the rental house itself will not allow section 179 or special bonus depreciation. Likewise any capital improvements must use 27.5 year recovery period just like the house or unit. However any appliances or other property that is not attached or part of the structure would allow this choice.
Pros: Take all the allowable deductions you can now, and let next year take care of itself. This allows more cash in your pocket now for unexpected expenses.
Most taxpayers, not all, prefer to leave some cost basis so there is some expense to offset the income evenly over the years.
Residential rental activities in general are lucrative because they are not considered self employment activity, therefore there is no self employment tax until and unless you are a real estate professional (not common).
Cons: The rental income will be higher with less deductions in the future which could be a tax burden.
If you sell any of the assets, all of the sale proceeds will be taxable because you will no longer have a cost basis in them for tax purposes.
You do have the option of the De Minimis Safe Harbor Election as well.
Improvements Election
This election is an option you can take each year that lets you write off some building improvements as expenses instead of assets.
Here are the rules you need to meet to take this election:
- Your gross receipts, including all your other income, are $10,000,000 or less.
- Your eligible building has an unadjusted basis of $1,000,000 or less.
- The cost of all repairs, maintenance and improvements is less than or equal to the smallest of these limits:
- 2% of the unadjusted basis of your building or
- $10,000
This election for building improvements is called the Safe Harbor Election for Small Taxpayers. If you decide to take this option, a form called Safe Harbor Election for Small Taxpayers will show up in your tax return. This election will apply to all your businesses, rental properties or farms. (IRS Tangible Property FAQs)
Personal Property (not personal use):
You expense the furniture in the year they are placed in service, based on your comments that will be 2021. The rental unit is rented or available for rent and advertised as such.
If the amount is $2,500 or less then you may be able to directly expense this under miscellaneous deductions on the rental using the DeMinimis Safe Harbor rules.
De Minimis Safe Harbor Election
This election for items $2,500 or less is called the De Minimis Safe Harbor Election. This election is an option you can take each year that lets you write off/deduct items $2,500 or less as expenses instead of assets. Expenses typically reduce your income by a larger amount than depreciating an asset over multiple years does. This means you could get a bigger refund.
If you decide to take this option, a form called De Minimis Safe Harbor Election will show up in your tax return. This election will apply to all your businesses, rental properties or farms.
Here are the rules you need to meet to take this election:
- You don't have an applicable financial statement (most people don't).
- You have a consistent process for how you record expenses and assets.
- You record these items as expenses on your books/records.
- The cost of each item as shown on your receipt is $2,500 or less.
- Rental Property select Edit > Other expenses > Other Miscellaneous Expenses
- Enter Description (Safe Harbor ...) and amount (not entered as assets under this election)
Note: Because you are under the $2,500 threshold, you are not required to used section 179. You can list these expenses under Miscellaneous. If the amount was over 2,500, then you would enter these as assets and then would be able to choose the 179 option.
- Maintain a complete record with your tax return should you need to verify these items at a later time.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
