Q: My tenants recently moved out after living in my rental house for five years. I found out that they ruined my kitchen’s granite countertops due to oil stains that cannot be removed. Can I deduct 50 percent of my replacement cost from their security deposit?
A: Typically you can charge tenants and take deductions from their security deposit only for damage that is beyond ordinary wear and tear. Is the condition caused by damage or misuse of the property? Or is it a result of normal and expected use of the property during the tenancy?
A solid-surface or granite countertop is not impervious to damage and does require some basic cleaning and care in normal usage.
So I personally would not consider the oil stains to be normal usage, as this is not a condition that is expected just through the passage of time but is likely the result of a failure to properly maintain the countertop on a daily basis.
You want to be sure to have a qualified independent contractor to verify whether the oil stains can be removed or the granite countertop has been damaged beyond any viable repair.
It is always best to be prepared and assume that your tenant will question a decision about the damage to the countertop. It would be a good idea to get a written opinion from the contractor to support the need to repair or replace the countertop, as well as to have two to three bids, as you want to be able to prove if challenged in court that the cost you incurred is reasonable.
The written opinion will also help if you voluntarily provide copies of all your documentation to the tenant and communicate openly and clearly with the tenant about your thought process.
For some items, there may be an argument that the damaged item has an expected useful life and it is unreasonable to charge the tenant for the entire cost of replacing the item.
For example, if the carpet has an expected life of 10 years and the tenant damages it in the ninth year, I believe it would be improper to charge the tenant for the entire cost of replacement because the useful lifespan had nearly been exhausted.
But a granite or solid-surface countertop is an item with a very long expected useful life under normal usage, and I don’t think there is an appropriate, set formula.
Depending on the extent of the damage and cost estimates by the contractors, a proposal to charge your tenant for half the cost of replacement could be reasonable, and if you follow the documentation steps you should be able to minimize the risk of a successful challenge by your tenant.
Q: I am a new landlord. Can you tell me what the standard is in the rental industry for calculating the balance of the useful life of carpet? I am being told by my former tenant that I am required to tie this to the IRS depreciation schedule, which he claims is five years.
While the IRS depreciation schedule is a tax code, I don’t believe that is in any way related to the actual useful life of carpet in a rental environment or practical in a private-use environment.
A: Your tenant is probably hoping to convince you that the Internal Revenue Service depreciation schedule is relevant because he damaged the carpet and does not want to be charged for the entire cost of replacement if he can show the carpet was essentially worthless.
The IRS tax code has no direct correlation with the useful life of carpeting in a rental unit, and over the years the depreciation schedules will even change as the federal government changes the tax code to either be more aggressive or less aggressive in offering tax incentives to stimulate the economy.
A shorter depreciation schedule for capital items like floor coverings and appliances and other building components is generally used to encourage real property owners to purchase more goods and services, as they can write-off or deduct the expenses on their tax returns.
For example, if the actual physical useful life of a carpet is eight years but the IRS depreciation regulations allow the landlord to write off the newly purchased carpet in five years, the landlord benefits through the faster write-off by having a higher depreciation expense to offset revenue, which in effect results in a lower reportable income on the property-tax returns.
