Depreciating Residential Rental Property Under The New Rules

Question
An owner of residential property, which is leased to another party, had the swimming pool resurfaced, and pavers installed on the deck. Does this have to be depreciated over the 27.5 years, or can it be a shorter period since this usually lasts about 10 years. Also, replaced garage doors, and the gutters – over how many years can these be depreciated? 27.5 years seems to long for these items. Roof replaced, which we will use the 27.5 years straight-line for depreciating residential rental property.

Answer
The functional useful life of 10 years would not be applicable. That being said, the IRS has provided guidance in IRS Publication 527 Table 2-1 as well as IRC Section 168(c) in which roads, shrubbery & fences are depreciated for 15 years as property associated with residential rentals. As such, the client could depreciate the swimming pool improvement for 15 years.

The other items such as the garage doors and gutters are considered structural components of the residential rental property and should be depreciation under 27.5 years. The Tax Court case of AmeriSouth highlights the risk for not depreciating this type of property under 27.5 years.

How much was the cost for all of these items? As per Reg 1.263(a)-3(h), there’s a safe harbor election for small taxpayers that could be applicable if the costs were $10K or less. There’s also the routine & maintenance and the de minimis safe harbors, but it doesn’t appear as though they would apply given the likely high cost for these items.

References: Reg 1.263(a)-3(h); IRS Publication 527

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