Depreciation vs. Supplies

[casey]

I have a rental property

What makes me put something in depreciation (I would always
rather put something as a supply since it is less
paperwork). What makes a something a supply vs. depreciable
item.

Here's what I've been doing..

microwave - depreciable
replacement dvd remote - supply
replacement screen door - repair
sheets - supplies
new shades - repair

 

[L K Williams]

I have a rental property

What makes me put something in depreciation (I would always
rather put something as a supply since it is less
paperwork). What makes a something a supply vs. depreciable
item.

Here's what I've been doing..

microwave - depreciable
replacement dvd remote - supply
replacement screen door - repair
sheets - supplies
new shades - repair

Maybe a definition of capital and expense would help.

An expenditure for something would be capitalized if it adds
to the value or to the expected life of the property.

An expenditure for something would be expensed if it merely
restores the value or the expected life of the property.

An example might be replacing the flooring in a bathroom.
If you are replacing a linoleum floor with new linoleum, you
are restoring the value or expected life. On the other
hand, if you replaced the linoleum with ceramic tile, you
are adding to the value and extending the life. Linoleum
would be a replacement, ceramic tile would be an
improvement.

See, also, my reply to (e-mail address removed) in the thread
"Depreciable property."

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

 

[Bob]

Maybe a definition of capital and expense would help.

An expenditure for something would be capitalized if it adds
to the value or to the expected life of the property.

An expenditure for something would be expensed if it merely
restores the value or the expected life of the property.

An example might be replacing the flooring in a bathroom.
If you are replacing a linoleum floor with new linoleum, you
are restoring the value or expected life. On the other
hand, if you replaced the linoleum with ceramic tile, you
are adding to the value and extending the life. Linoleum
would be a replacement, ceramic tile would be an
improvement.

This makes sense, but I would like to take it a bit further.
I have a vacation rental home, and I understand the rules
about painting vs. adding a room, etc., but what about
furniture? When we bought the house, we spend about $20,000
on furniture and then began to depreciate it. Subsequently,
however, we sometimes buy additional furniture (a $900 desk,
an $85 TV cabinet, a $1200 painting, etc.). These pieces
don't add anything to the value of the house (unless it is
sold turnkey, which is common in Hawaii, where the house
is), but does it mean that overtime we buy something new we
need to start a new depreciation schedule? The paperwork
could be daunting, especially since (for the three examples
above) they were all bought in different years. Or maybe
they should be considered personal property (I might take
the painting if I sold the house, but I might also leave it)
and not subjected to any kind of tax treatment.

 

[L K Williams]

This makes sense, but I would like to take it a bit further.
I have a vacation rental home, and I understand the rules
about painting vs. adding a room, etc., but what about
furniture? When we bought the house, we spend about $20,000
on furniture and then began to depreciate it. Subsequently,
however, we sometimes buy additional furniture (a $900 desk,
an $85 TV cabinet, a $1200 painting, etc.). These pieces
don't add anything to the value of the house (unless it is
sold turnkey, which is common in Hawaii, where the house
is), but does it mean that overtime we buy something new we
need to start a new depreciation schedule? The paperwork
could be daunting, especially since (for the three examples
above) they were all bought in different years. Or maybe
they should be considered personal property (I might take
the painting if I sold the house, but I might also leave it)
and not subjected to any kind of tax treatment.

You are wrong! The furniture itself has value, independent
of the value of the house. So, when you buy something like
the desk, you are acquiring a new asset, which has value and
an expected life.

True, it may not add to the intrinsic value of the house but
it is not an integral part of the house, so it must be
considered as a separate asset. This is NOT like replacing
the flooring in the bathroom, for example.

Technically, if you sell a house with all its furniture, you
are supposed to account for the transaction as a series of
sales -- selling the house and land, and selling the various
items of furniture. I am not aware of anyone actually doing
this and I have never seen the IRS insist on this approach.
In any event, it you do sell furnished, your basis includes
the cost of the furniture and, at least in theory, the
furniture increases the amount you can sell for.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

 

[Paul Thomas]

What makes me put something in depreciation (I would always
rather put something as a supply since it is less
paperwork). What makes a something a supply vs. depreciable
item.

Here's what I've been doing..

microwave - depreciable
replacement dvd remote - supply
replacement screen door - repair
sheets - supplies
new shades - repair

Sounds reasonable to me.