Is a New Refrigerator Tax-Deductible on Rental Property?

Ordinarily, you can deduct the cost of appliances you bought for a business, including a rental property, over a period of time according to the item's depreciation schedule. Appliance depreciation rules are designed to let you deduct the value of the item over its useful life, not all at once. In many cases, you can instead choose to deduct its value all at once, especially under new rules going into effect for tax year 2018.

If you own a residential rental property, you're often legally required to keep certain basic kitchen equipment, such as a refrigerator, in each rental unit. Even if that's not the case in your jurisdiction, it can be hard to rent a property without a fridge.

Buying a fridge is therefore a legitimate business expense related to your rental property business. Improvements to a rental property are generally depreciated over a number of years, during which you deduct a portion of the value from your business income each year, rather than all at once. By way of contrast, expenses for repairs are generally deducted in the year the expense is incurred.

Most equipment you buy is depreciated according to a system called the modified accelerated cost recovery system, or MACRS. According to MACRS, appliances, carpeting and furniture in residential real estate, including devices like refrigerators, ovens and stoves, are depreciated over five years. The MACRS system provides a variety of depreciation systems you can legally use to pick the right fridge or stove depreciation rate for your business.

In many cases, you can also deduct the entire value of the fridge all at once.

There are many scenarios where you're able to simply deduct the value of equipment, such as a fridge, in the year you bought it rather than going through the normal appliance depreciation process.

Under IRS rules, you can make what's called a de minimis safe harbor election to deduct, rather than depreciate, the value of low-priced items for your business, including appliances for a rental unit. Since 2016, the limit is $2,500 per item or invoice above the cost of many refrigerators, meaning you can elect to deduct the cost of a new fridge rather than depreciating it if that's better for your tax purposes.

Under rules that go into effect for tax year 2018, you can also deduct more expenses under a section of the tax law known as Section 179. Under the new rules, you can do this with up to $1 million in new property used for certain allowable business uses, including providing lodging to your tenants. This property can include appliances, such as refrigerators, and furniture, such as beds.

Under the tax rules in effect for tax year 2017 and earlier, you generally can't deduct residential appliances under Section 179, and the annual Section 179 deductions are limited to $510,000. Some exceptions do apply, such as for hotels and motels primarily catering to transient guests, not permanent residents. If your rental property is a hotel, you may be able to deduct, rather than depreciate, in-room fridges even under the more restrictive rules.