Can You Write Off Furniture for a Rental Property?

Understanding the tax implications of rental property expenses can significantly impact an investor’s bottom line. Writing off furniture purchases for a rental property offers tax benefits that can enhance profitability.

Treating Furnishings as Deductible Assets

Furnishings in a rental property qualify as deductible assets under IRS guidelines and are treated as capital assets. These assets can be depreciated over time using the Modified Accelerated Cost Recovery System (MACRS), which assigns furniture a seven-year recovery period. This allows property owners to spread costs over several years, reducing taxable income incrementally.

For furniture to qualify as a deductible asset, it must be used exclusively for income-generating purposes in the rental property. Personal use disqualifies it as a business expense. The furniture must also be necessary and ordinary for the rental operation—for instance, a dining table in a furnished apartment would qualify as ordinary, while a luxury item like a grand piano would not.

The IRS requires the cost of furniture to be capitalized, meaning it must be recorded as an asset on the balance sheet rather than immediately expensed. This includes tracking the purchase price and associated costs, such as delivery and installation, to ensure accurate depreciation calculations and compliance with tax regulations.

Depreciation Basics for Furniture

Depreciating furniture involves allocating its cost over its useful life, typically seven years under MACRS. This spreads out the expenditure in accordance with IRS regulations. The depreciable basis of the furniture includes the purchase price and any additional acquisition costs, such as delivery or installation fees.

Property owners can choose between different depreciation methods. MACRS is commonly used, but the straight-line method, which evenly spreads the cost over the asset’s useful life, is another option. The choice between these methods affects the timing and amount of deductions, influencing cash flow and tax liabilities.

The decision to use accelerated depreciation or a more gradual approach depends on the property owner’s financial strategy. Accelerated depreciation provides immediate tax relief, while a steady, long-term approach may better suit those seeking consistent deductions.

Section 179 Expensing

Section 179 expensing allows businesses to deduct the full purchase price of qualifying property, including certain furniture, in the year it is acquired. This can provide significant tax savings and boost cash flow. To qualify, the furniture must be used for business purposes more than 50% of the time and must be purchased and put into service during the tax year in which the deduction is claimed. As of 2024, businesses can deduct up to $1,160,000, with a phase-out threshold of $2,890,000, adjusted annually for inflation.

Section 179 expensing is often compared to bonus depreciation, which also allows for a 100% deduction on qualifying assets. The choice between these options depends on financial circumstances and long-term planning. Section 179 may be more advantageous for businesses with lower taxable income, while bonus depreciation could benefit those anticipating higher future earnings.

Recordkeeping Guidelines

Effective recordkeeping is crucial for managing rental properties and tracking depreciable assets like furniture. Detailed records ensure compliance with tax regulations and support accurate financial reporting. Property owners should document all furniture purchases, including invoices, receipts, and associated costs like transportation or installation. These records substantiate deductions and capital expenditures during audits or reviews.

Using technology can simplify recordkeeping. Digital tools and accounting software designed for property management can automate tracking and organizing expenses, making historical data easily accessible for planning and analysis. Cloud-based platforms offer real-time updates and facilitate collaboration with accountants or advisors, improving the accuracy of tax filings. Regularly updating records ensures all transactions are categorized correctly, aligning with Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).