Examples of 5 and 7 Year Property in Rentals and Commercial Buildings

The shift that matters most in many studies comes from items treated as personal property. This page gives general examples. It is not a list you can use to classify your own property, because classification depends on the facts and on legal analysis. It is meant to give a sense of the kinds of items involved.

Why the distinction exists

Tax law distinguishes items that are part of the building, treated as real property, from items that are tangible personal property. Courts and the IRS have discussed factors such as whether an item is permanently affixed, whether it can be removed without damage, whether it serves the operation of the building or a business activity, and whether it was intended to be permanent. Where an item is personal property, it can have a shorter recovery period.

Commonly discussed residential examples

• Carpeting and some removable floor coverings.
• Appliances, such as ranges, refrigerators, dishwashers, and washers and dryers, if they are not part of the structure.
• Window treatments and blinds.
• Some cabinetry and countertops in certain situations.
• Certain decorative lighting and fixtures.
• Furniture in furnished rentals.

Commonly discussed commercial examples

• Removable partitions.
• Special electrical or plumbing serving specific equipment.
• Some specialized flooring or wall coverings.
• Security and communication systems.
• Certain items serving a tenant's particular operation.

5 versus 7 years

Many appliances, carpeting, and certain equipment are commonly assigned 5 years. Office furniture and equipment, and property without an assigned class, are commonly assigned 7 years. Specific asset classes exist in IRS revenue procedures. Your preparer or provider uses those.

What generally stays in the building

Walls, roofs, foundations, plumbing that serves the building generally, general electrical wiring, most heating and cooling for the building, and elevators are typically part of the structure. A study spends much of its effort on borderline items.

Why borderline items matter

Classification of borderline items can move the totals. If you see a study that treats many structural items as personal property, ask for the reasoning. If the reasoning is thin, be cautious. See Red Flags in Cost Segregation Study Proposals.

Furnished property

Owners of furnished rentals often buy furniture and appliances after purchasing the building. These purchases are generally separate assets, with their own classification and possible bonus, whether or not a study is done. Keep receipts. See Short-Term Rentals: The Study Decision.

The role of cost

Each identified item needs a cost. For purchased buildings, costs are often estimated using cost references and reconciled to the total. The reliability of the estimate matters. See What an Engineering-Based Study Typically Includes.

Bonus depreciation

Personal property with a 5 or 7 year life may qualify for bonus depreciation, subject to current rules. See How Bonus Depreciation and Cost Segregation Interact and Bonus Depreciation: Rules as Currently Understood (Verify).

Recapture

Gain attributable to personal property depreciation can be taxed as ordinary income up to the depreciation taken when you sell. See Depreciation Recapture on Sale: What Comes Back.

A cautious way to use this page

Use it to have a better conversation with your provider, for example by asking which categories of items they expect to find in your property and why. Do not use it to estimate your own shift.

Why the distinction requires judgment

The tests used to decide whether an item is structural or personal property look at several factors, and courts have not given a single clean rule. Two items that look similar can be classified differently depending on their function and installation. For example, lighting that serves the general illumination of a building is generally part of the structure, while lighting that serves a display or a specific process may be treated differently. The classification of flooring, wall coverings, and cabinetry can also differ depending on how they are attached and used.

What an owner can do

An owner can help by keeping records that describe items and their purchase, by noting whether items were installed for a specific business purpose, and by asking the provider to explain borderline classifications. An owner can also decline to take an aggressive position on doubtful items. Conservative classification, well documented, is often more valuable than an aggressive one that invites questions.

Small purchases

Small items, such as inexpensive equipment or furnishings, may be deductible immediately under certain safe harbor rules, subject to conditions and dollar limits. Ask your preparer whether these apply. They can simplify the treatment of small items and reduce the number of assets to track.

Categories to bring to your first provider call

Bring a rough inventory: flooring types, appliances, cabinetry, lighting, window coverings, specialized electrical or plumbing, security systems, signage, and furniture or equipment included in the purchase. A quick inventory helps the provider scope the work and helps you see what the study might find.

What a study will not classify as personal property

Load-bearing walls, roofs, foundations, and building envelopes are structural. General plumbing risers, general wiring, and general heating and cooling are generally part of the building. Permanent flooring that is integral to the structure, such as certain tile set in mortar, is often treated as part of the building. Do not expect a study to move these into shorter classes. If a proposal suggests otherwise, ask for the basis.

Next steps

Read Land Improvements and the 15 Year Class for the third short class, then Depreciation Classes: 5, 7, 15, 27.5, and 39 Years.