How to Depreciate Siding

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If you own a residential or commercial rental property, you may have thought about installing vinyl siding. Siding can extend the life of your house or building, but it is expensive. Property improvement tax deductions can ease the cost of vinyl siding. However, the Internal Revenue Service won't let you deduct the full cost of siding all at once. IRS rules mandate that you must depreciate the cost of vinyl siding for residential and commercial rental property.

  • Find the useful life of siding as defined by the IRS. Residential additions like siding for home improvements have a recovery period of 27.5 years. The recovery period determines the number of years the home improvement cost will be depreciated

  • Refer to table A-6 on IRS Publication 946 and find the top horizontal row numbered 1 to 12. This row represents months of the year that your siding, or any other depreciable home project, was finished. For example, if your siding was installed in February, use column 2 to depreciate your siding.

  • Start at row 1 on the column labeled "Year," and scan across to the number 2 monthly column. Assuming your siding project was completed in February, you will come to a figure of 3.182 percent. This is the initial percentage of depreciation for siding as determined by the IRS.

  • Multiply the year 1 row, February percentage of 3.182, by the total cost of the siding project. This is the first year's depreciation in dollars. This figure may be subtracted from your yearly, taxable rental revenue.

  • Find the remaining balance to be depreciated over the next 27 years by subtracting the first year's depreciation from the total cost. The difference between the initial siding costs and first year's depreciation is carried forward to year 2's depreciation schedule.

  • Moving down the first column on A-6 each year, use the same method of finding the applicable year's rate and subtract it from the undepreciated siding costs. The calculations will give you the current year's depreciation and the next year's balance carry-forward. Since the siding has a life of 27.5 years, which means 28 to 29 annual iterations, repeat this process until the undepreciated balance of your home siding project is zero dollars.

References

  • Photo Credit stone and siding image by jimcox40 from Fotolia.com
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