Carpet and Flooring Depreciation on a Rental Property

Carpet in a residential rental is 5-year property. IRS Publication 527, Table 2-1, lists carpets as 5-year property under the General Depreciation System (9 years under the Alternative Depreciation System), and the text confirms the 5-year class “includes appliances, carpeting, and furniture used in a residential rental real estate activity.” Other flooring is decided by how it is installed, not what it is made of: a removable floor covering follows carpet, and a permanently attached floor is part of the 27.5-year building.

Installation labor follows the floor covering it installed. If the carpet is 5-year, so is the cost of laying it.

Why does attachment decide it?

Depreciation law separates tangible personal property, which can be removed without damaging the building, from structural components that are part of it. The Tax Court applied that line to floor coverings in Hospital Corporation of America v. Commissioner, 109 T.C. 21 (1997), and the IRS Cost Segregation Audit Techniques Guide uses the same permanence questions: how is it attached, can it be removed without damage, and is it designed to stay in place permanently?

Carpet on tack strip passes easily. A floating click-lock floor sits on underlayment and locks to itself rather than to the subfloor, so it comes up the same way. Tile set in mortar and hardwood nailed to the subfloor do not; removing them damages what is underneath.

What about the flooring that came with the house?

When you buy a rental, the carpet and floating floors are part of the price, but the closing statement does not separate them. Without an allocation they ride in the 27.5-year building basis, recovered at roughly 3.6 percent a year. A cost segregation study measures the floor area by covering type and moves the removable coverings to the 5-year class, alongside appliances, furniture and the site improvements outside. If you bought in an earlier year, Form 3115 can catch up the missed depreciation without amending old returns.

Replacing carpet between tenants: expense or depreciate?

Replacing the carpet in a unit is generally treated as replacing a unit of property, so it is capitalized rather than deducted as a repair. Two things soften that:

• De minimis safe harbor. Under Treas. Reg. §1.263(a)-1(f), a taxpayer without an applicable financial statement can expense items costing $2,500 or less per invoice or per item, if the election is made each year. A single room often fits; a whole unit often does not.
• Bonus depreciation. Above the de minimis limit, new carpet is 5-year property, and bonus depreciation usually lets you deduct it in the first year anyway.

Writing off the old carpet

The carpet you tear out still has undepreciated basis, and you can generally deduct it in the year you remove it. If the old carpet was on its own line, that is a one-line entry. If it was buried in the building, the partial disposition election in Treas. Reg. §1.168(i)-8 can still separate it, but you need a reasonable way to measure its basis. A study that itemized the floor coverings at purchase gives you that number.

Is flooring alone worth a study?

Usually not on a small rental, where your tax preparer can separate a known carpet cost. A study pays when floor coverings are one part of a larger short-life allocation. Our components list shows what else a study separates, and the MACRS guide covers how each class is recovered.

This article is general information, not tax advice. Classification depends on how each item is installed and used; confirm your treatment with your CPA.