Tax implications for new appliances and water heater

[Silas B.]

Hi all,

I recently purchased my first 2 single family homes as rental properties and have a few tax questions. I purchased new appliances, new waterheaters, and new floating floors, as well as fresh paint throughout the homes.

Is there a way for some of that to be deducted the same year I purchased or does it all go as a capital expense?

Any advice appreciated! Thanks so much

[Patricia Steiner]

You need to know the tax code...

"Purchases of major appliances like a refrigerator, carpet, stove, washer and dryer are all tax deductions for landlords. However, you may not be able to deduct the entire cost of the appliance the year you buy it. That's because the IRS considers these purchases to be assets rather than expenses."  

More:

"Here's the basic rule from the IRS: An expense is for an improvement if it:

• 1. makes a long-term asset much better then it was before
• 2. restores it to operating condition, or
• 3. adapts it to a new use.

In contrast, expenses you incur that don't result in a betterment, restoration, or adaptation are currently deductible repairs."

Yep, clear as mud...And, I actually met the person who wrote the modern-day ("simplied") tax code. He said it was real simple until it got into the hands of the attorneys.  So bottom line:  the answer isn't simple. Do your homework..don't use common sense because it doesn't apply...