Appliances in St. Louis rental homes are going to depreciate over time, as all appliances do. The difference here is that they’re likely to deteriorate faster – there’s more wear and tear being put upon them by any number of tenants. You can also take deductions on your taxes based on those depreciating appliances.
Here’s what you need to know.
Average Appliance Lifespans Will Vary
Most appliances will last between eight to 15 years, but some will break down quickly and others will last much longer. New appliances will typically offer a three-month to a one-year warranty and you can usually purchase an extended warranty from the manufacturer, depending on the appliance and where you buy it.
Your most expensive appliances will be the heating and cooling systems, specifically the furnace and the air conditioning unit. Fortunately, those are some of the longest lasting appliances. A thermostat usually lasts for 35 years while a furnace typically lasts 15 to 20 years, depending on the type of fuel it uses.
Understanding Appliance Depreciation in Rental Homes
Appliance depreciation, for tax purposes, refers to the value that’s lost in your appliance over time. According to the IRS, those appliances are assets, which means there are set depreciation amounts you can claim, depending on the appliance itself and the length of time you’ve owned it.
Prepare to deduct for the depreciation of appliances in your rental property at tax time. This deduction can sometimes offset the initial costs of buying new appliances for your investment properties. Work with a good tax accountant or CPA to ensure you’re taking all the benefits to which you’re entitled.
Calculating Your Appliance Depreciation
By IRS standards, your rental property appliances depreciate for five years. It does not matter when in the year you bought that appliance, the IRS will treat it as though it was purchased halfway through the year for purposes of claiming a depreciation credit. It’s referred to as the “Half-Year Convention.”
Like everything with the IRS, the standard rule can be different under some circumstances. If you made 40 percent or more of your appliance purchases for one property in the last three months of the year, you can group your purchases by quarter instead.
You can include sales tax, delivery charges, and even installation fees in the purchase price of your rental property’s depreciating appliances. However, you need to remember that these purchases do not qualify for IRS Section 179, which addresses accelerated depreciation.
Calculating the depreciation at tax time will be pretty simple. If you own St. Louis rental property for the full year, divide your cost basis by 27.5. If you only own the property for a part of the year, the depreciation is calculated based on how many months of the year you own it.
This is what works for residential rental property. With commercial real estate, it’s a bit different.
If you need some help talking through your rental property appliances and what they mean for you when it comes to taxes, contact us at Amoso Properties. We’re your best St. Louis property management resource.
