Depreciaation of Furniture, Appliances and Carpets in purchased rental property.

[carladamec]

I am in the process of buying a rental property already furnished. Can I separate out the value items that can be depreciated over 5 year ( furniture. appliances) from the total purchase price of the house? If you think so can you help me find an IRS source for your answer? Thanks. Carl Adamec

[Burke]

When you begin depreciation on a rental property, you must separate out the cost of the land from the purchase price (or other basis) as it is non-depreciable. I see no reason why you cannot set up depreciation for the furniture and appliances separately from the building. Carpeting may be an integral part of the building. See IRS Pub 527 on Residential Rental Property, Chapter 2. Also Pub 946 on Depreciation.

[David1980]

What you're asking about is cost segregation. The IRS does have an audit guide on it, http://www.irs.gov/Businesses/Cost-S...le-of-Contents

If I remember correctly, you basically need to have a cost segregation study done to determine the value of the carpets, etc... (stuff you want to segregate/depreciate over a shorter life.) You can't just pick values for how much you think the carpet is worth or the appliances and so forth.

[Roberts]

Picking values for used items that have already been installed in a building seems ripe for abuse IMO.

At best, I might declare a lump sum for some furniture but it would be minimal garage sale value. Itemize them for your records when the IRS comes calling. Seriously, how much do you think you paid for them? Take photos to show they are worth something and hopefully they were itemized on your sales contract. Rental units routinely include a LOT of stuff and I'll break it out as a single item, declare it a $3,000 value (something like that) and depreciate for 5 years. I know on some, those are $15,000 packages to buy new.

Appliances that are installed, no way. Those are the same as light fixtures or carpeting IMO unless you get an outside appraisal. Considering how much used stuff costs, isn't worth it unless you have acquired highly valued furniture or rugs.

[taxea]

I am in the process of buying a rental property already furnished. Can I separate out the value items that can be depreciated over 5 year ( furniture. appliances) from the total purchase price of the house? If you think so can you help me find an IRS source for your answer? Thanks. Carl Adamec

If you purchased it included in the price of the property it is easier to and more appropriate to keep it in the basis for depreciation. When you replace these items then you depreciate the new ones separately.

[Bees Knees]

I am in the process of buying a rental property already furnished. Can I separate out the value items that can be depreciated over 5 year ( furniture. appliances) from the total purchase price of the house? If you think so can you help me find an IRS source for your answer? Thanks. Carl Adamec

If you are in the process of buying a rental property, see if the seller will list a value for the furniture and appliances separately on the purchase agreement. That way no cost segregation study needs to be done and you have an agreement that tells you exactly what you paid for the furniture and appliances for depreciation purposes.

If the seller won’t do this and a cost segregation study is too expensive for its worth, at best I would put thrift store values on those things and depreciate them separately and deal with an IRS argument later if and when you get audited.