I bought the house in 2016 and just rented it out in 2022. There are appliances like dishwasher, oven stove etc left in the house when rented out. Can I depreciate those?

Forum|Forum|3 years ago
February 16, 2023
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2022 is my first year rent my house out. Except for the house value, can I depreciate the appliances left in the rental house? I didn’t purchase them in 2022. They were purchased in 2016 when we purchased the house originally.

TurboTax Online

JamesG1

You may depreciate the appliances as well as the dwelling when the property is converted to rental use.

You may have purchased the appliances separately and there is a record of the original cost in your home purchase paperwork.

The internet may give you a idea of the fair market value of each item.

IRS Publication 551 pages 10 and 11 states:

Property Changed to Business or Rental Use

If you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. An example of changing property held for personal use to business use would be renting out your former main home.

Basis for depreciation

The basis for depreciation is the lesser of the following amounts.

The fair market value (FMV) of the property on the date of the change, or
Your adjusted basis on the date of the change.

@eleven13

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eleven13Author

Thank you!! I didn’t save any receipts when purchased those back in 2016, can I estimate the cost by google on internet? Date in service will be the date I rent it out? And what method you recommend to use for appliances like stove oven etc.?

Opus 17

Employee

@eleven13 wrote:

Thank you!! I didn’t save any receipts when purchased those back in 2016, can I estimate the cost by google on internet? Date in service will be the date I rent it out? And what method you recommend to use for appliances like stove oven etc.?

I would presume the current fair value of a used stove is much less than what you paid, so the purchase price and receipts are not relevant. You must use the current fair market value for used appliances of the same or similar model in the same or similar condition with the same or similar features.

The date you place the property "in service" is the date the home is ready and available to rent. (In rental condition, has a certificate of occupancy, is advertised as an available for rent, meets all legal requirements to be rented.). Presuming it takes a couple weeks for background checks, deposits, and so on, the in service date might be some time before the first tenants actually move in.

Carl11_2

Employee

If the appliances were already there when you purchased the house, then you would need to reduce your cost basis of the structure by whatever cost basis you use for the appliances. If you purchased the appliances separately, then there's no need to reduce the cost basis of the house.

You said the appliances were purchased in 2016, and you're converting the property to a rental in 2022. For depreciation, you use the original cost of the appliance, or it's FMV on the date placed in service - whichever is "lower". Since it's obvious the cost basis will be the FMV when placed in service in 2022, you may find this not worth the effort. That oven/stove you paid $800 for in 2016 might only be worth $300 or less when you placed it in service in 2022. Appliances are depreciated over 5 years. That comes out to a measly $60 a year.

Not to mention the accounting headache and additional paperwork and work on your part it creates when it breaks and you need to replace it.

I myself choose not to separate out appliances and the such. My primary reason is because my county assesses a "tangible property tax" every year on anything non-real estate that is used to produce income. I don't need that paperwork nightmare every year.

Not trying to discourage you here. Just giving you my own reality of doing this.

Opus 17

Employee

If they came with the house, then no. You didn't pay for them, or there was a clause in your contract that said you are buying the house for the selling price, and you are buying the contents for $1. (This is typical.). If you didn't pay for the appliances, you can't depreciate them.

[Edit, since starting to write my answer, I see there is another answer that you can depreciate the appliances if they "came with the house" but you must reduce your basis in the house. I think that both my answer and that answer are acceptable alternatives.]

If you bought them separately, you can list them as separate assets for depreciation, so you recover their costs faster. BUT, the basis for depreciation is either the price you paid, or the fair market value when placed in service as a rental. So you need to list them at their present (used) value.

Lastly, I am not a rental expert, but @Carl11_2 is, and he will tell you that (for various reasons) you should want to minimize your depreciation, not maximize it. So it might be better to just include the appliances as part of the overall value of the house.

Carl11_2

Employee

he will tell you that (for various reasons) you should want to minimize your depreciation, not maximize it. So it might be better to just include the appliances as part of the overall value of the house.

Some have their reasons for maximizing depreciation. Other's for minimizing it. I choose to keep my depreciation as low as I legally can. What many folks don't realize is that depreciation is not a permanent deduction. If/When you sell the property in the future, you are required to recapture all depreciation taken and pay taxes on it in the tax year you sell. Two things about recaptured depreciation that I take into account in my decision.

1.) Recaptured depreciation is taxed at the "ordinary" income tax rate, whereas your gain on the sale is taxed at the capital gains rate. Depending on the numbers, the later can actually be lower than the former.

2.) Recaptured depreciation is added to your AGI in the year you sell. Depending on the numbers, the increased AGI could be enough to bump you into the next higher tax bracket. If you're normally in the 12% bracket, the next one up is 22%. Again, depending on the numbers, you could "feel" that 10% difference.

Anonymous_

Employee

@Carl11_2 wrote:
What many folks don't realize is that depreciation is not a permanent deduction. If/When you sell the property in the future, you are required to recapture all depreciation taken and pay taxes on it in the tax year you sell.

Not to get sidetracked here, but that line of reasoning completely ignores the time value of money which, over the course of the standard 27.5 years, should factor quite a bit into the matrix.

Whatever the amount of tax based upon recaptured depreciation deductions, the taxpayer is returning that tax in much cheaper dollars than when the deductions were taken (and presumably resulted in a tax savings).

The foregoing is really just basic economics, but there are also a couple of scenarios where accumulated depreciation is either never recaptured (e.g., the death of the owner) or deferred (e.g, a 1031 exchange) and they should be taken into account as well.