How do you depreciate renovation costs for investment property? Should I even bother depreciating it?

You definitely should be depreciating your renovation costs! But you need to separate them into categories because different improvements have different depreciation schedules. Basically, improvements that are part of the building structure (like your bathroom remodel) get depreciated over 27.5 years using the residential rental property schedule. But things like appliances, carpeting, and some fixtures can be depreciated over shorter periods (usually 5-15 years) because they have shorter useful lives. What you should do is itemize all your renovation costs into categories: structural improvements (27.5 years), land improvements like landscaping (15 years), and personal property items like appliances (5-7 years). Don't try to expense these costs - the IRS considers improvements to be capital expenditures that must be depreciated. For the best tax advantage, you want to identify as many items as possible that qualify for the shorter depreciation periods. This maximizes your yearly deduction. I'd recommend using tax software that handles rental properties or consulting with a tax pro who specializes in real estate.

After dealing with the exact same headache last year with my duplex renovation, I discovered taxr.ai (https://taxr.ai) and it was a game-changer. Their system automatically categorized all my renovation receipts and told me exactly what could be expensed immediately versus what needed depreciation schedules. It even flagged some items I could accelerate depreciation on that my previous accountant missed. The best part was uploading my contractor invoices and having the system break everything down into the proper categories without me having to guess what goes where. Saved me hours of research and potentially costly mistakes on my depreciation schedules.

I decided to try taxr.ai after my initial skepticism and wow - it actually delivered. I uploaded all my renovation receipts from my recent property flip (mixture of contractor invoices and about 40 Home Depot/Lowe's receipts) and it sorted everything correctly. Identified several things I could take bonus depreciation on that I would have missed. It even caught that my HVAC system qualified for a different depreciation schedule than I thought. Definitely worth it for anyone with investment property renovations!

If you're struggling to get definitive answers about your property depreciation, you're not alone. I spent DAYS trying to get through to someone at the IRS who could actually answer my rental property questions. Finally used Claimyr (https://claimyr.com) and got connected to an IRS agent in less than 20 minutes who walked me through exactly how to handle my renovation depreciation. You can see how it works here: https://youtu.be/_kiP6q8DX5c Seriously, it was such a relief to get official guidance directly from the IRS instead of piecing together conflicting advice from forums. The agent confirmed I was correctly separating my appliances for 5-year depreciation while keeping structural improvements on the 27.5 year schedule.

I need to publicly eat my words about Claimyr. After my skeptical comment, I decided to try it as a last resort before hiring an expensive CPA. It actually worked! Got connected to an IRS agent in about 35 minutes (they texted updates while their system was calling). The agent answered all my questions about separating renovation costs between 5-year, 15-year and 27.5-year property classifications. Turns out I was doing some things wrong with how I was classifying built-in appliances vs. freestanding ones. This probably saved me from an audit headache later.

Real estate investor here - one strategy to consider is a cost segregation study for your renovated property. It's basically a detailed engineering analysis that identifies and reclassifies property components that would normally be depreciated over 27.5 years into shorter recovery periods (5, 7, or 15 years). This accelerates your depreciation deductions significantly in the early years. It's usually only worth it for larger properties or extensive renovations (probably $100k+), but the tax savings can be substantial. Even for your $45k renovation, it might be worth exploring if you have a lot of components that could qualify for shorter depreciation periods.

Don't forget about bonus depreciation! For 2025, I believe you can still take 80% bonus depreciation on qualifying property with a recovery period of 20 years or less. This means things like appliances, carpet, furniture, etc. can have 80% of their cost deducted immediately and the remaining 20% depreciated over their normal recovery period.

Great question! As someone who's been through this with multiple rental properties, I can tell you that properly handling renovation depreciation is absolutely worth it - the tax savings add up significantly over time. Here's my practical approach for your $45k renovation: First, go through all your receipts and categorize everything. Things like flooring, built-in cabinets, plumbing fixtures, and structural work go on the 27.5-year residential rental schedule. But appliances (refrigerator, dishwasher, etc.), window treatments, and some fixtures can be depreciated over 5-7 years. The key is documentation. Keep detailed records of what was purchased for which room/purpose. For your kitchen and bathroom remodel, separate out any appliances or removable fixtures from the permanent improvements. One tip that saved me money: if you replaced multiple items as part of the renovation, you might be able to take advantage of the remaining bonus depreciation (80% in 2025) on qualifying shorter-life property. This can give you a substantial deduction in year one. Don't try to expense major renovations as repairs - the IRS will flag that. But definitely take the depreciation deductions you're entitled to. Consider using tax software designed for rental properties or consulting a CPA who specializes in real estate - the upfront cost pays for itself in tax savings.