Many landlords focus solely on material costs and tenant preferences when selecting new flooring, overlooking how dramatically different depreciation schedules can affect their bottom line. 

What most don’t realize is that carpet can be fully depreciated in just 5 years, while hardwood must be stretched over 27.5 years – creating vastly different tax scenarios that can directly impact your rental property’s profitability.

In this guide, we’ll explain how the IRS classifies different flooring types, walk through calculations with real numbers, and show you how to time flooring investments for maximum tax benefits while staying compliant with regulations.

Calculating and reporting flooring depreciation (with examples)

The first step is determining exactly what costs can be included in your depreciable basis. The good news is that you can typically include more than just the cost of the flooring materials:

• Materials: The full cost of the flooring products themselves
• Labor: All installation costs including subfloor preparation
• Removal costs: Expenses for removing and disposing of old flooring
• Delivery fees: Transportation charges for bringing materials to your property
• Permits: Any required local building permits for the installation

These combined costs form your “basis” for depreciation calculations. Make sure to keep detailed records and receipts for all these expenses, as they directly impact how much you can deduct each year. Remember that sales tax paid on materials and services can also be included in your depreciable basis.

Now, let’s look at how different flooring types are depreciated with specific examples to illustrate the various tax impacts.

Carpet flooring

Carpet is generally considered a “personal property” item with a 5-year depreciation life.

Let’s say you spent $3,000 on new carpet for your rental property ($2,200 for materials and $800 for installation). Using the straight-line method:

Annual depreciation = $3,000 ÷ 5 = $600 per year

This means you can deduct $600 each year from your pre-tax income for 5 years, significantly faster than more permanent flooring options.

Hardwood flooring

Hardwood flooring is typically considered a structural component of the building because it is permanently attached and intended to last the entire lifespan of the property. That’s why it is depreciated over 27.5 years.

For example, if you invested $12,000 in hardwood flooring ($8,500 for materials and $3,500 for installation), using the straight-line method you annual depreciation expense would be:

Annual depreciation = $12,000 ÷ 27.5 = $436.36 per year

So, you can deduct $436.36 per year for the next 27.5 years as a non-cash deduction to reduce your taxable net income.

Other common flooring types

Most permanent flooring installations are considered structural components of the building and therefore depreciated over the same 27.5-year period as the building itself. This includes:

• Vinyl flooring
• Laminate flooring
• Ceramic/porcelain tile
• Stone flooring

The key factor in determining the correct depreciation period is whether the flooring is considered part of the building structure (27.5 years) or personal property (5 years) like carpet that can be removed without damaging the structure.

Where and how to report on tax forms

Here’s how to ensure your deductions are correctly documented:

1. Schedule E (Supplemental Income and Loss): This is where most landlords report rental income and expenses. Depreciation appears on line 18 of Part I.
2. Form 4562 (Depreciation and Amortization): You’ll need to complete this form the first year the flooring is placed in service:

• Part III, line 19b is used for carpet (5-year property)
• Part III, line 19h is used for residential rental property components like hardwood and tile (27.5-year property)

3. Depreciation Worksheets: While not submitted to the IRS, maintain detailed depreciation worksheets in your records that track:

• Date the flooring was placed in service
• Total cost basis (materials, labor, removal costs)
• Recovery period (5 or 27.5 years)
• Method of depreciation (typically straight-line)
• Amount claimed each year

If your rental property is owned by an LLC, S-Corp, or partnership, the depreciation will be reported on the entity’s tax return (Form 1065, 1120S, etc.) before flowing through to your personal return.

Key considerations and frequent pitfalls

Repairs vs improvements

One of the most common mistakes landlords make is confusing repairs with improvements. The distinction has major tax implications:

Repairs maintain your property in good working condition without adding significant value or extending its useful life. These costs are fully deductible in the year incurred.

Examples include:

• Patching small sections of damaged carpet
• Fixing loose floorboards
• Repairing small areas of cracked tile

Replacements/improvements add value to your property, prolong its useful life, or adapt it to new uses. These must be capitalized and depreciated over time.

Examples include:

• Replacing carpet throughout a room or unit
• Installing new hardwood floors
• Upgrading from carpet to tile

Section 179 and Bonus Depreciation limitations for rental properties

Many landlords mistakenly believe they can use Section 179 expensing or bonus depreciation for all flooring replacements, but there are important limitations:

Section 179 Expensing: This allows businesses to deduct the full purchase price of qualifying equipment in the year it’s placed in service. However, Section 179 deductions are generally not allowed for rental properties, which are considered passive activities. The exception is if you qualify as a real estate professional for tax purposes.

Bonus Depreciation: Under this provision, businesses can deduct up to 100% of the cost of qualifying assets in the first year they are placed in service. While bonus depreciation can apply to rental property improvements, it’s important to note that bonus depreciation is phasing out, decreasing from 80% in 2023 to 60% in 2024, and will continue declining until it’s eliminated, unless the relevant tax provisions are extended or renewed.

Bonus depreciation can still be applied to qualified improvement property, but generally not to residential rental building components with 27.5-year depreciation lives. Because carpet is considered 5-year personal property rather than a building component, it might qualify for bonus depreciation even when other flooring types don’t.

Keeping supporting documentation

The IRS requires you to maintain records that substantiate your depreciation deductions. Keep all receipts, invoices, contracts, and proof of payment for the flooring purchase and installation. These documents should show:

• Date of purchase/installation
• Vendor information
• Description of the flooring
• Cost breakdown
• Proof of payment

This documentation is essential if you’re ever audited and will make tax preparation significantly easier year after year. The good news is that managing depreciation schedules and maintaining proper documentation doesn’t have to be a headache.

Tips for Tracking Flooring Depreciation

Manually tracking flooring depreciation over 5 or 27.5 years using spreadsheets works, but quickly becomes challenging – especially when you own multiple properties with different flooring types installed in various years.

Let’s say you have three rental units with a mix of carpet, hardwood, and vinyl flooring installed at different times. Rather than juggling multiple depreciation schedules, consider using a specialized accounting tool designed for rental property owners.

Stessa (free to get started) offers features specifically for tracking capital expenses, including your flooring investments. The platform’s real estate balance sheet tracks property value and mortgage balance, giving you a clear picture of your true equity position.

The system categorizes your income and expenses automatically, assigning flooring costs to the correct property and expense category. You’ll have a real-time dashboard monitoring how your flooring investments affect your property performance, helping you make data-driven decisions about future replacements.

Today, over 300,000 rental property investors use Stessa to track their portfolios. The platform handles any number of properties, from single-family homes to multifamily buildings or vacation rentals.

The Stessa Tax Center is free for members of the Stessa Community. It includes a suite of free tax resources created in partnership with The Real Estate CPA, helpful how-to articles detailing tax preparation best practices, and videos to help you get the most from our software.

With Stessa, you also get access to things like:

• Automated accounting tools
• Manual expense tracking
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Go here to start using Stessa for free.

*Stessa is not a bank. Stessa is a financial technology company. Terms and conditions, features and pricing are subject to change. This article, and the Stessa Blog in general, is intended for informational and educational purposes only, and is not investment, tax, financial planning, financial, legal, or real estate advice.