What depreciable life should be used for hardwood flooring installed for business use in a home office and exam room?
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For hardwood flooring installed for business use in a home office and exam room, the appropriate depreciable life is determined by the classification of the flooring under the Internal Revenue Code and the Modified Accelerated Cost Recovery System (MACRS).
1. Classification of Hardwood Flooring
Hardwood flooring is considered a type of floor covering. The classification of floor coverings for depreciation purposes depends on whether the flooring is considered a structural component of the building (real property) or tangible personal property.
- If the hardwood flooring is permanently affixed (nailed, glued, or otherwise installed as a permanent part of the building), it is generally treated as a structural component of the building and thus as part of the real property (i.e., the building itself).
- If the flooring is installed in a manner that is not permanent and can be readily removed without damage, it may be considered tangible personal property and could potentially qualify for a shorter recovery period.
However, in most cases, hardwood flooring is installed as a permanent improvement and is treated as a structural component.
2. Depreciation Life for Structural Components
a. Home Office and Exam Room in a Personal Residence
When a portion of a personal residence is used for business (such as a home office or exam room), the business-use portion of the home is depreciated as nonresidential real property under MACRS if it is used exclusively and regularly for business purposes.
- Nonresidential real property (such as a home office or exam room used for business) is depreciated over 39 years using the straight-line method and the mid-month convention.
b. Floor Coverings as Structural Components
- Permanent hardwood flooring is considered part of the building’s structure and is depreciated over the same period as the building itself.
- For a home office or exam room in a personal residence, this means the hardwood flooring is depreciated over 39 years (nonresidential real property).
c. Exception: Readily Removable Floor Coverings
- If the flooring is installed in a manner that is not permanent (e.g., floating floors, removable panels), and can be removed without damage, it may be classified as tangible personal property and depreciated over 5 or 7 years depending on the specific facts and use.
- However, this is rare for hardwood flooring, which is typically installed as a permanent improvement.
3. IRS Guidance and Cost Segregation
- The IRS Cost Segregation Audit Techniques Guide and industry matrices confirm that permanent floor coverings such as hardwood, tile, or stone are structural components and must be depreciated over the same period as the building (39 years for nonresidential real property).
- Only floor coverings that are installed by means of strippable adhesives and can be readily removed (such as carpet or some vinyl) may qualify for a shorter recovery period.
4. Application to Your Scenario
- Hardwood flooring installed in a home office and exam room for business use is a structural component of the building.
- The business-use portion of the cost is depreciated over 39 years using the straight-line method and mid-month convention, consistent with nonresidential real property under MACRS.
5. Additional Notes
- If only a portion of the home is used for business, only the business-use percentage of the flooring cost is depreciable.
- If the flooring is replaced as part of a repair (not a restoration, betterment, or adaptation to a new use), and does not constitute a major component or substantial structural part, it may be deductible as a repair expense under the tangible property regulations, but full replacement of hardwood flooring is generally a capital improvement.
In summary: Hardwood flooring installed for business use in a home office and exam room should be depreciated over 39 years as nonresidential real property under MACRS, using the straight-line method and mid-month convention.
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