Condo rental depreciation question

[Luvdogs]

Bought a small condo in 2013 and have been renting it out.

In 2016 I had the shower redone (30+ year old condo), cost about 3K and a "refresh" on the kitchen--new countertops, sink, etc. (about $1500). I'll call these the "refresh."

Well the new shower leaked so in 2021 I had the bath completely remodeled and I also had the kitchen completely remodeled. Cost was about 10K each. I'll call these the "gut."

I had been depreciating the 2016 refreshes. I was doing 5 years on the kitchen and 27.5 years on the bathroom.

My CPA (initial free consult) told me to "shut down" the first ones. Does that mean I can depreciate the balance on the refreshes plus start with the price of the guts in 2021? Or does that mean I cannot depreciate anything anymore on the refreshes effective 2021?

Thanks and I hope this is not too confusing.

 

[Sunset]

Besides depreciating the work you had done in 2016, I hope you have also been depreciating the 2013 capital cost of the condo unit itself.

<RANT people think Landlords are getting rich doing repairs >

I don't know what your CPA means, but my inclination would be to fully depreciate (like expense) the remaining depreciation of both "refesh" costs as they have been removed by the "gut" (similar if you threw out a broken A/C).
Then start the depreciation of the "gut" (50% of the depreciation the 1st year as normal).

I'll be interested to hear what someone who knows the answer says.

Also, curious why you chose 5 years on the kitchen and 27.5 years on the bathroom, seems to me they would be the same rate. I personally go long on my when in doubt but I have special reasons for that.

 

[Texas Proud]

Agree with sunset... you disposed of the refresh so it is a write off of any remaining basis...


I also do not know why it would be 5 years... does not fit any of the assets that I know of... heck, not even 7 years...



From a website...


Assets with an estimated useful lifespan of five years include cars, taxis, buses, trucks, computers, office machines (including fax machines, copiers, and calculators), equipment used for research, and cattle. Assets with an estimated useful lifespan of seven years include office furniture and other fixtures.


BTW, look at the recapture rules... if you take accelerated depr you have to recapture your depr when you sell... I think SL you get to claim a cap gain...

 

[Luvdogs]

Yes, I've been depreciating the cost less land since I've been renting it out.

I'm wondering if Turbotax "prefilled" the five years for the countertop?? I looked it up and I'm not sure how I got that either, ugh... It should have been 27.5 years.

Sunset, can you please clarify "50% of the depreciation the 1st year as normal"?

And the new kitchen appliances can be depreciated over five years but the rest is 27.5 years, correct?

Thanks!

 

[cathy63]

I agree with the others that you write off whatever is left of the 2016 investment by taking the remainder as a deduction in 2021 and also start depreciating the new investment.

I assume you were depreciating the countertops and sink as furniture (5 yrs) instead of as fixtures (27.5 yrs). I doubt if the IRS would agree that the useful life of either of those items is only 5 years, but it sounds like you've already finished depreciating them since this is the 6th yr since you did the work. And I guess if they question you, then you can always argue that you really only did get 5 yrs out of them so your estimate of their lifespan was ulitmately proved correct.

 

[Sunset]

Please ignore my "50% of the depreciation the 1st year as normal"

I haven't done my taxes yet. That statement may only apply to Canada.

Here in the USA, I use the straight line method (equal depreciation each year).

Apologies for throwing confusion into the mix.

 

[Winemaker]

The first refresh has been taken out of service upon the second update completion. The remaining cost not depreciated will now be considered a capital loss on your Schedule E. This was how my roof replacement of 1999 was treated in TurboTax in 2019 when I replaced the roof again.

 

[pb4uski]

+1. That's the way it works.

 

[Texas Proud]

Yes, I've been depreciating the cost less land since I've been renting it out.

I'm wondering if Turbotax "prefilled" the five years for the countertop?? I looked it up and I'm not sure how I got that either, ugh... It should have been 27.5 years.

Sunset, can you please clarify "50% of the depreciation the 1st year as normal"?

And the new kitchen appliances can be depreciated over five years but the rest is 27.5 years, correct?

Thanks!

OK, if it is only a countertop it might have fallen into the 7 year assets... F&F...


Either way it does not matter as you get to write it off if it was destroyed in the new update...