Can I depreciate a refridgerator I bought for my rental unit even though I didn't finish paying it off?

Question

I bought a refrigerator in May 2007 and have 12 months to pay it off on my Sears credit card. I've paid for about half of it. Even though I still have a balance, can I depreciate it in my 2007 taxes or should I be expensed because I'm paying for it on my credit card (no interest financing for 12 months)? Does it have to be fully paid off this year before I can depreciate it in 2007?

Answer 1

YES - you can depreciate the refrigerator in the year it was purchased regardless of your method of payment.

BUT - you should do some research and find a chattel appraiser. They can go through your entire rental property and legitimately find tons of ways to increase your depreciation for this year.

Basically they break down your asset to find the shortest life (translation - largest depreciate allowed) by 'piece.'

I won't try to explain it here - but search the internet for a chattel appraiser near you. They will charge you around $350 but should save you a ton on this year's taxes.

Good luck

Answer 2

You can depreciate the refrigerator in 2007 even though you have not paid off your credit card.

You will depreciate the refrigerator over five years. This year you will be able to take 20% of the cost as depreciation.

You cannot expense the entire cost of the refrigerator using Section 179. Section 179 is not allowed for items used to furnish rental units (see IRS Pub 946)

Answer 3

Yes, you can depreciate it. Whether or not the credit card charge is paid for yet is irrellevant.

Actually, since this is a rental property, the portion of the interest charges for the credit card attributable to the fridge are also deductible. I used to rent out a number of properties and kept a separate credit card for use exclusively on the rentals to keep the bookkeeping simple.

This is NOT considered an improvement to the property (unless it is a built-in model) and will not adjust the property's basis though it will complicate things a bit at selling time if you include the fridge with the sale. It is considered an investment and is depreciable, though you'll have to depreciate it separately from the house since it has a shorter depreciable life than the house does.

Oops! Disregard my comments on Section 179. I certainly blew that one!

Answer 4

Tax laws don't really care if you've actually paid cash for something. You've paid for the item already in the eyes of tax law, since buying it on credit is still an obligation to pay.

Another example would be with college tuition, you might pay for it with student loans, but you can still use it to take the Hope Credit, or Life long learning credit now even though you won't pay your loans off until you're done with college.

Answer 5

If this is considered an improvement to the property, then you include it in the basis for calculating capital gains when you sell the property, but deduct nothing now.

Otherwise:

If this is a rental owned by someone else and in which you live, you cannot deduct it at any time.

If this is a rental owned by you and rented to someone else, you depreciate it. It does not matter whether you paid off the loan or not. However, if you do not pay off the loan eventually, then you pay tax on the forgiven debt.

Answer 6

If you bought it in May of 07 then the purchase price you paid for it at that point in time is the starting point and dollar amount for depreciation; even if it takes forever to pay for.

Answer 7

If the personal property was placed in service in 2007, then you can depreciate it. It does not matter that you have the credit card bill unpaid.

Answer 8

You cannot depreciate appliances (or other personal property) unless they are used for business purposes. It doesn't matter why you bought it or how you are paying for it.