New rental property - claim blinds & fans on tax?

Question

Hi there BP, newbie here with my first post. A little about myself: my wife and I fell into being landlords. In 2016 we moved interstate from TX to MO. My wife was not with me when I bought a 1600sf new build house, although she gave me the go ahead via facetime video chat. About 2 months after moving in, she said it was too small and I had to buy her another house. So rather than take a huge hit on selling this first house, we decided to stick our toes in the waters of being landlords. Well it went quite well and we bought another new build, then another. Now in 2019, we just closed on another one and we are closing on a 5th new build house this week. And plan on looking for number 6 soon.

I've been trying to figure out what I can claim on my taxes. I buy 2" faux wood blinds and ceiling fans, and curtain rods for each house. Also the sod got laid the day we closed and I spent around $400 on hoses, sprinklers and timers to keep the water up (it's a 90 minute round trip and don't have the time to make it every other day).

This may sound like a dumb question, but what category are these items claimed under for the IRS?

Thank you in advance for any replies!

Mike

Frank Chin · Answer

@Michael King

Decks I would depreciate at 27.5 years, especially if done at acquisition. But I would keep at as a separate item, because in the back of my mind, it won't last 27.5 years. I made that mistake when I did a rehab, combined everything into one large asset into the cost basis of the building. Most of the things didn't last 27.5 years, such as carpeting. Accounting wise, I'm stuck as I can not change it. Wish carpets would last 27.5 years. If it's one separate identifiable item, like the carpet, I could charge it off when I replace it. That's before I learned about componentizing assets.

The funny thing about the carpet in the rehab that's a rental, when the 1st carpet wore I several years later, it was replaced and I started depreciating the new carpet. A few years later, was replaced again. Then I was reviewing my books, the first carpet is depreciated as part of the rehab project, then I got the 1st and 2nd carpets, 3 assets on the books triplicated. There were many others, like hot water tanks.  When my CPA and I was talking about it, I told him that I don't mind it as I got so many duplicate assets that I'm really spreading out my deductions.

Frank Chin · Answer

The short answer is whether you capitalize or expense the items. it goes onto the schedule E, either for repairs, or supplies. What you have would be expensed under these 2 categories.

It gets more complex when you have items that cost more and last a number of years. So my CPA and I have agreed that for certain items, costing over $1,000, it will be capitalized. If we carpet, it will be capitalized and have a life of 5 years. Paint jobs are expensed though I read a post somewhere that someone got audited, and the IRS said the paintjob should be capitalized.

And then there are issues where you first bought the rental. If I bought it in 2019, the place won't be ready till 2020, I would not expense things in 2019, but capitalize it into the cost basis of the house.

I've been doing this for over 35 years, had the same CPA for over 25. I've been over the issue of capitalizing vs expensing over the years, and at one point, it didn't matter which gives me more deductions because we had large W2 incomes, and deductions capped. But with capitalizing, we found that we had to review things annually if we took things out of service. We bought a house to rehab, carpeted the place, capitalized it for 10 years, thereafter rented the place out, carpeted a few more times for 10 years. Then one year, I checked things, the SFR has 4 carpets capitalized and with remaining lives, and we're depreciating 4 identical carpets. I often rushed when I do my taxes and don't go review assets on the books. We had the same issue with hot water tanks, capitalized for 10 years, and many don't last 10 years, but we don't clear broken hot water tanks. My CPA then advise me to expense things under $1,000.

Then there are recent laws where it allows expensing of things instead of capitalizing, my CPA explained, so I let him review annually what's expensed, and what's capitalized. It got to be too much for me.

Michael King · Answer

Thank you Frank and Max! Even though I will have 6 SFRs by Friday, I'm still relatively new at this. I'm also a foreigner, since I moved to the US 13 years ago from Australia where it is all a bit different - and what I thought would work the same way, particularly with taxes, does not. The one thing rings true though, I am just as confused here in this country as I was in Australia! But luckily I've had what I believe to be a great accountant for the last 8 years.

I just started keeping a diary for trips to the rentals, and it adds up! So far, 6000 miles driven for the rentals.

This is a great forum, and active too!

Max T. · Answer

Claim it all, keep good records, and let your CPA worry about it!

Michael King · Answer

Frank, thank you so much for your thoughtful answer. You have clarified this issue for me. I just had a deck built on the house, and I recall my accountant telling me to have it invoiced separately to the closing of the house (the builder built the deck as an add on charge), in order to get better appreciation of it. How I don't know, unless it's not subject to the 27.5 year rule?

At the end of the day, I was looking for the best way to categorize expenses on my excel spreadsheet, and for things like this, I will just present the information to my accountant-magician and let him do his job.

Again Frank, thank you so much for taking the time to post your answer!

New rental property - claim blinds & fans on tax?

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