Depreciation is used for items that cannont be fully expensed in the year they were paid for. For a rental property this would include items such as the building, appliances, furniture, and improvements.
Property that should be depreciated meets the following requirements:
- You own the property
- You use the property in your rental
- The property has a dterminable useful life
- The property is expected to last more than 1 year
- The property is not excepted property (such as property placed in service and disposed of in the same year)
For rentals, the following are examples of depreciable property and their useful lives:
- Building – 27.5 years
- Appliances – 5 years
- Carpets – 5 years
- Furniture – 7 years
- Fences – 15 years
- Additions and improvements – 27.5 years
When you start to rent a residential home, part of the cost basis of the home must be allocated to land. Land is not a depreciable item. You can figure the portion of the building cost attributable to land by using proprety tax records or a professional appraisal.
If questions arise about whether or not a rental item should be expenses or depreciated for tax purposes it is always best to consult a tax professional. This way you can make sure your tax return is correct.