$11,000 new landscape on rental property. Expense or improvement?

Forum|Forum|3 years ago
February 5, 2023
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How should I enter an $11,000 total new landscape on a rental property. Expense or improvement? Pros and cons?

PattiF

The new landscape is considered an improvement and would be depreciated. Capital improvements that add to the value of your rental property, prolong its life, or adapt it to new uses must be depreciated over a period of time rather than deducted as a current-year expense.

Expenses are a short-term category such as maintaining the landscape.

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ImsygirlAuthor

If the property was sold is there recapture on that depreciation?

AmeliesUncle

Can you clarify about what EXACTLY the landscaping was?

Depending on the exact details, some may be deductible, some may be depreciated, and some may not affect anything on your tax return for this year.

ImsygirlAuthor

A total new landscaped front, back and side yards. Large concrete patio, new landscaping rock, and two corner flower beds in backyard with rock extending up half of the side yard, concrete walkway from front to backyard on other side of home, synthetic turf in front yard with new tree and bushes, and new rock. All new drip system in front and back.

AmeliesUncle

The concrete patio and walkway would likely be "land improvements" that are depreciated over 15 years (but may qualify for the Special Depreciation Allowance/Bonus Depreciation).

The rest of it is bit more hazy and complicated. From IRS Publication 527 (its also in Publication 946):

Certain property can’t be depreciated. This includes land and certain excepted property.

Land.

You can’t depreciate the cost of land because land generally doesn’t wear out, become obsolete, or get used up. But if it does, the loss is accounted for upon disposition. The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and can’t be depreciated. You may, however, be able to depreciate certain land preparation costs if the costs are so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property.

Example.

You built a new house to use as a rental and paid for grading, clearing, seeding, and planting bushes and trees. Some of the bushes and trees were planted right next to the house, while others were planted around the outer border of the lot. If you replace the house, you would have to destroy the bushes and trees right next to it. These bushes and trees are closely associated with the house, so they have a determinable useful life. Therefore, you can depreciate them. Add your other land preparation costs to the basis of your land because they have no determinable life and you can’t depreciate them.

https://www.irs.gov/publications/p527#en_US_2022_publink[phone number removed]