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Increasing the depreciation deduction of your residential rental property

Updated: Mar 11, 2020

A breakdown of tangible property items and land improvements that allows for a greater depreciation deduction each year.

Your rental property purchase is made up of land, building, land improvements, and tangible property.

Starting in 2019, you want to break out the above items for shorter depreciable lives which therefore allows for a greater depreciation deduction each year.

After breaking out tangible property to be depreciated faster, then the remainder of the cost of the residential purchase is allocated to land improvements, bare land and the building.

Per IRS Pub 946:

  • Tangible property consists of property contained in or attached to a building (other than structural components), such as refrigerators (all appliances), signs, portable air conditioners or heaters.

  • Land improvements include swimming pools, paved parking areas, wharves, docks, bridges, and fences.

Other tangible property that can be separated and depreciated over a shorter life include nearly any removable property that is not part of the building structure, such as removable cabinets, lighting, and other assets. Carpet and linoleum surfaces are also considered tangible assets.

“Removable” generally means something that can be removed in one piece and installed in another location without altering or repairing the item. An example of removable tangible property is a cabinet that is hung on a wall. A cabinet that is imbedded or built into the wall is not considered ‘removable’.

Land improvements aren’t considered removable, but they do have a shorter life than the main structure, and therefore are depreciated faster on your tax return. Sidewalks, driveways, patios, some patio covers, decking, awning and the like are also land improvements.

Remodel or additions to your rental

After your purchase, it is also important to break out any remodel, addition or replacements, including the above-mentioned tangible property and land improvements, and including HVAC units, water heaters, roof replacement, and the like.

Provide the best detail you can and attach an estimate of the dollar amount for each tangible property item, and each land improvement item, and submit that with your closing settlement statement, and other tax information to our office. We’ll review your information and check back with you for more details as needed, in order to achieve your overall best tax position.

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