When should hardwood flooring depreciation start for a newly renovated office space?
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Depreciation of hardwood flooring in a newly renovated office space should begin when the flooring is "placed in service," meaning the date it is ready and available for its intended use in the business, regardless of whether it is actually being used at that moment. This is a fundamental principle under the Internal Revenue Code and IRS guidance.
1. Key Legal Principles and Application:
- Placed in Service Date
- Depreciation begins when property is placed in service for use in a trade or business or for the production of income. "Placed in service" means the date the property is ready and available for a specific use, even if it is not actually being used yet. For example, if the hardwood flooring is installed and the office is ready for occupancy (even if employees have not yet moved in), the flooring is considered placed in service on that date.
- Depreciable Basis and Recovery Period
- The cost of the hardwood flooring is added to the basis of the building as a capital improvement. For nonresidential real property (such as an office), the flooring is considered a structural component and is depreciated as part of the building over 39 years using the straight-line method under the General Depreciation System (GDS).
- Example from IRS Guidance
- If you install a new floor as part of a renovation, the flooring is an improvement and must be capitalized and depreciated. Depreciation begins when the office is ready and available for its intended business use, not when the renovation project started or when the flooring was purchased.
- Partial-Year Depreciation
- If the flooring is placed in service partway through the year, the depreciation deduction for the first year is prorated according to the applicable convention (for nonresidential real property, the mid-month convention applies).
2. Summary of Steps:
- Determine the date the office space (with the new hardwood flooring) is ready and available for business use.
- That date is the "placed in service" date for depreciation purposes.
- Begin depreciating the cost of the hardwood flooring as part of the building starting in the month it is placed in service, using the mid-month convention and a 39-year straight-line recovery period.
3. Conclusion:
Depreciation of hardwood flooring in a newly renovated office space starts when the flooring (and the office space) is ready and available for its intended business use, not before. This is typically the date the renovation is complete and the space could be occupied for business, even if actual occupancy occurs later.
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