What Are Capital Expenses for Deduction Purposes?
Capital assets refer to whatever you buy for your rental activity that has a useful life of more than one year. As such, your main capital asset is the building or buildings you rent.
However, capital assets also include equipment, vehicles, furniture, and appliances.
These costs, called capital expenditures, are considered part of your investment in your rental activity, and not daily operating expenses.
The cost of your capital assets must be deducted little by little over several years, a process called depreciation. For your reference, residential rental buildings are depreciated over 27.5 years.
Capital assets that are not real estate depreciate in a much shorter period. For example, vehicles and furniture depreciate over 5 years.
The cost of land is not deductible. You must wait until the land is sold to recover the cost.
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