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Equipment and Improvement Depreciation

This article helps explain how depreciation works for Equipment and Improvements


1. Overview

When creating an Equipment or Improvement, you can select whether you want to capitalize and depreciate the asset or expense it in the period in which it was incurred.  When determining the method to use, the key distinction is whether a cost provides a short-term benefit (expense) or a long-term improvement (capitalize).

  • Expense immediately if the cost is for routine maintenance or repairs that keep the property in its normal operating condition — for example, fixing a broken appliance, repainting between tenants, or patching a roof leak.

  • Capitalize if the cost adds value, extends the useful life, or adapts the property to a new use. Examples include installing a new roof, replacing an HVAC system, or adding a deck. Capitalized costs are depreciated over their useful lives rather than deducted all at once.

  • Equipment purchases (e.g., appliances, tools, or furniture) are typically capitalized and depreciated, though under IRS “safe harbor” rules you may expense items costing $2,500 or less per invoice (or per item if itemized) using the De Minimis Safe Harbor Election.

  • Routine maintenance safe harbor allows you to expense recurring work expected more than once every 10 years, such as cleaning gutters or repainting.

The general rule: if it restores or improves, capitalize; if it maintains or repairs, expense. Always keep documentation to support your classification.

2.When you capitalize one of these assets, you need to record the monthly depreciation of that asset.   The monthly amount depends on the depreciation schedule.  

The depreciation schedule depends on what the item is and how long it’s expected to last. The IRS sets standard “useful lives” for different asset types:

  • Residential rental buildings: 27.5 years

  • Commercial buildings: 39 years

  • Appliances, furniture, and equipment: 5–7 years

  • Land improvements (fencing, paving, landscaping): 15 years

You’ll generally use the MACRS (Modified Accelerated Cost Recovery System) method, which is required for most rental property assets. Each asset you capitalize gets its own schedule starting from the date it’s placed in service.

3. When you create either an equipment or an improvement object, you will select a category, which adds another layer of granularity for the object.  When you select that category, and leave the Accounting Treatment as Capitalize, the Depreciation schedule will populate automatically with the correct depreciation schedule.

4. When the equipment or improvement is created, the depreciation entries will be created

5. You can see them by navigating to Financials -> Depreciation and selecting Equipment or Improvements tabe.   Additionally, you can view it in the Depreciation Schedule.