The Concept of "Real Property"
for Residential Landlords

In the world of material possessions, there are two distinct classes of property; real property and personal property. For residential landlords, knowing the difference between these two can come in very handy, especially for reducing tax bills at tax time! Let's see what real and personal property are, and how knowing the difference between them can affect your bottom line as a residential landlord.

The Concept of "Real" Property

In the eyes of the law, the term "real-property" is considered any "immovable" property, such as land and anything that is attached to it. This includes trees, buildings, roads, fences etc. The term is also used interchangeably with "real estate".

Personal property , on the other hand, is any "movable" property, such as money, furniture, cars, appliances, etc. For tax purposes, personal property is usually treated differently than real property or real estate. The same is true for accounting and depreciation purposes.

The Benefits of Distinguishing between Real and Personal Property

As a residential landlord, knowing the difference between the two classes of property isn't just useless information - it can actually put money in your pocket. This is accomplished by separating the cost basis (investment cost) of the real estate (building and land improvements) from the cost basis of the personal property (stoves, refrigerators, furniture, etc.) and then depreciating them separately.

In this manner, the separate depreciation expenses when combined will be greater than if the total cost basis of the property (less the raw land cost) were only treated as real property and depreciated over the longer 27.5 year recovery period. This is because personal property has much shorter recovery periods (5 - 15 yrs normally) when compared with the longer 27.5 year recovery period for residential real estate. And, shorter recovery periods result in higher annual depreciation expenses which lowers your taxable income and tax bill - bingo!

Please note: The above information on property classes is general in nature and should not be considered tax or accounting advice. It should not be relied upon for your own particular circumstances. For tax advice, please consult the services of a qualified accountant or tax attorney.

For more in-depth information on depreciation and various classes of property, please visit The Landlord's Library book collection. It's a fabulous "one-stop" resource for helping you pave the path to your landlording success.

Return from Real Property to Federal Income Tax Filing