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I sold the refrigerator in one of my rental properties this year & replaced it with a new one.

On my Federal Income Taxes (Schedule E) this year, would the proceeds from the sale count as Rents received, Royalties received, or be netted against the expense of the new refrigerator?

Thanks in Advance!

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If you did not separate out the fridge for depreciation, you just had it part of the house. A 27.5 year depreciation that you can calculate. You might have made or lost some money. You should depreciate the new one stand alone, on the 5 year depreciation schedule @littleadv notes in his answer.

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    Joe, this is wrong. – littleadv Mar 14 '14 at 4:07
  • I read your answer. It's most common to have the entire house be on 27.5 yrs, since one wouldn't have the individual bills for each item, appliances, carpet, etc, that might catch the faster cycle. As I said, the new purchase goes on its own depreciation schedule. – JoeTaxpayer Mar 14 '14 at 9:47
  • what you're saying is that all these items have zero cost basis. Fine. Act accordingly. You can't just ignore these items. – littleadv Mar 15 '14 at 4:51
  • I do not think you depreciate a refrigerator as part of the house. – ssaltman Mar 17 '14 at 17:35
  • What I probably incorrectly assume is that in a new purchase, if one doesn't set up the separate schedules of depreciation, the 27.5 is taken for granted on all. A citation would be great, else one can sell a new fridge and have a gain? – JoeTaxpayer Mar 17 '14 at 17:51
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It doesn't go on Schedule E at all, it goes on form 4797.

The fridge should have been depreciated, over 5 years. If you sold it after 5 years, all the proceeds are taxable income taxed as depreciation recapture (25% rate) up to the allowable depreciation (your original cost basis), above which it is taxable capital gain. Whether you actually have depreciated it or not, it is really your problem, IRS doesn't care. So if 5 years of ownership passed - just write it all as taxable income on the form 4797. Otherwise, allowable depreciation prorated (and you can still amend forms 3 years back to get at least part of it).

The new fridge should also be depreciated over the 5 years of its expected useful life. See form 4562.

Talk to a licensed tax professional (EA/CPA licensed in your state) for details.

  • If you edit your question to address the situation I imagine to be most common, I buy a place, rent it, and depreciate over 27.5, but sell an item as OP described, I will delete my answer. – JoeTaxpayer Mar 14 '14 at 13:09
  • @JoeTaxpayer I'd say if you claim the fridge was a free load when you purchased the rental - you'll take all the proceeds as capital gain. 27.5 years depreciation is only for the building. – littleadv Mar 15 '14 at 4:50
  • this is what you are expected to do, but actually, like many folks, I expense new appliances (which I buy used anyway) as repairs and don't add bother with the depreciation paperwork. – ssaltman Mar 17 '14 at 17:38

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