What kind of deduction for large wall and basement insulation project in an owner-occupied multi-unit?

When I follow the asset depreciation screens, the asset categories are "Rental Real Estate Property", "Computer, Video, Photo and Telephone Equipment", Tools, Machinery, Equipment, Furniture", and "Intangibles, Other property".  Following the first category, I can break out into "Real Estate Property", "Land Improvements", or "Appliances, Carpet, Furniture".  None of these are completely accurate.  What category is insulation?  Or a roof, or siding, etc?  I have followed each one and they have drastically different depreciation allowances.

Yes, it can be confusing. And you are correct that it is a capital improvement to the property which would require the selection of Rental Real Estate Property.

 

There is one other option you can consider for this project which is the Safe Harbor for Small Taxpayers.

• What can I depreciate or expense with the business safe harbor method?

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

 If you find you do qualify for this option and you want to take the full expense in one year for the insulation project , use the steps below to enter it in your return. 

1. When you come to the screen, Did you buy any items that each cost $2,500 or less in 2024? mark the No button and click Continue.
2. If you mark that some cost above $2,500, you will be asked Did you make improvements to rental in 2024?
3. If you say Yes, you will be taken through the screens for the Improvements election.
4. If you say No, you will see the screen Do you have any items that aren't covered by your elections?  Proceed through the screens to enter these assets.
5. On the Rental Summary screen go to the Expenses section and click on the Start/Update box.
6. Continue to the Any Other Expenses? screen and enter the description and amount paid for the assets. Click Continue when finished.

Thank you.  Knowing that the project cost exceed the 2% of unadjusted basis ($5500) or 10k, (rental portion or project amounted to $7900 with additional repair expenses) I have to enter as an asset.  When I  choose Real Estate Property, it can be "land improvements", "real estate property", or "appliances, carpet, furniture".  The Land improvements option gives a special election, the real estate property gives nothing but requires me to enter a physical address of property acquired, and the appliances etc. option gives me a Section 179 allowance.  Somewhere in the murky IRS rules I saw that there is a Section 179D rule for green building improvements?   I figured appliances, carpet etc is the closest as it is a material item added to the building?   I wonder how insulation is categorized for this approach. 

Insulation is classified as a building improvement and is depreciated over 27.5 years.  It is would be classified as Residential Real Estate. It is not a land-improvement.

 

Section 179D I is generally available for multifamily residential rental buildings that are at least four stories above ground. This deduction is designed to encourage energy-efficient improvements, such as upgrades to lighting, HVAC systems, or building envelopes, in qualifying buildings.

 

Last thing I wish to mention that there is no 179 deduction for insulation. The other things that are mentioned have a determinable life such as appliances, carpets, furniture. These wear out over a relatively short period of time thus are eligible for the 179 deduction.

 

Insulation doesn't wear out easily thus has a much longer life span than appliances, carpets, furniture etc. It often lasts as long as the building. That is why it depreciated over 27.5% years and not eligible for the 179 Deduction.