Condominiums and Townhomes
A rented condominium unit is analyzed as residential rental property only if the owner’s activity meets the §168(e)(2) dwelling-unit test. The IRS residential matrix names condos, but association-owned common elements are a separate ownership question. This page is educational information, not tax advice.
Educational information, not tax advice.
Updated 2026-10-14
Key takeaways
- The unit owner depreciates only basis the owner actually has — typically the unit interior and any limited common elements included in that owner’s cost.
- Association-owned roofs, corridors, and site work are generally not additional depreciable basis on the unit owner’s return.
- Chapter 7.H expressly names condos among the residential rental properties the matrix covers, when the building is residential rental property.
- Fee-simple townhomes can include owner-held driveways and yards; read the deed before treating site work as the owner’s 15-year property.
- No IRS matrix addresses condominium-association taxation. That gap is flagged for CPA review.
- Bonus depreciation as of 2026 can apply to qualified personal property and land improvements acquired after January 19, 2025, not to a 27.5-year unit shell.
A condominium held for rent is still a house or apartment used to provide living accommodations, which is the statute’s definition of a dwelling unit. Residential rental status, however, is an income test applied to a building or structure: 80% or more of that year’s gross rental income must be from dwelling units. A rented unit in an otherwise owner-occupied building, a short-term listing, or a hotel-branded condo-hotel can change the analysis. Confirm the test with a CPA. Do not assume every rented condo is 27.5-year property.
When the unit is residential rental property, the depreciable building cost inside the owner’s basis is generally recovered over 27.5 years. Publication 5653 Chapter 7.H states that the residential matrix covers a house, condo, or apartment. Unit-level appliances, removable VCT, sheet vinyl, and carpeting, and dedicated appliance hook-ups are reviewed on the same examiner rows used for other residential rentals. Kitchen cabinetry, counters, and sinks remain building in that matrix.
What the owner paid must be split among land (if any interest in land is in the deed), the unit’s building cost, and personal property the owner actually bought. Assessments paid to an association for building-wide roofs, elevators, or parking are usually the association’s property, not extra basis in the unit. CostSeg SI’s property research did not locate IRS guidance on condominium-association common elements. That ownership question is open and is not resolved here.
A porte-cochère example in Chapter 7.H is framed as a condominium entry and is listed as §1250 residential rental property. Common-area pools and courts follow the same attached-versus-on-land split used for apartments — but only if those improvements are in the taxpayer’s basis. An owner who does not own the pool does not depreciate the pool.
Fee-simple townhomes look more like single-family rentals when the deed includes the driveway, yard, and exterior walls. Site paving and fencing can then be the owner’s class 00.3 property if they are depreciable land improvements. A townhome in a planned community that deeds streets and yards to an association looks more like a condo for those items. Read the recorded documents before classifying site work.
This article is educational information, not tax advice. Proposed Super Intelligence unit-level take-offs are explanatory only. Personal-use units are not depreciable at all.
Unit interior versus association property
Appliances the unit owner purchased, furniture in a furnished rental, and removable floor covering inside the unit are the usual personal-property candidates under Chapter 7.H and Publication 527. General unit wiring, plumbing fixtures, and built-in kitchen casework stay with the residential building in that matrix. Ceiling fans that are the primary light source are building.
Do not depreciate a share of the association’s elevator, roof, or corridor carpet merely because monthly dues are paid. Those costs may be deductible under other rules your CPA applies, but they are not automatically MACRS basis in the unit.
Townhome deeds and site work
If the owner holds fee title to a driveway, sidewalk, patio, or fence, class 00.3 is the usual starting class in Publication 946. Landscaping may be land or 00.3 depending on whether it would be destroyed when a related depreciable asset is replaced, the same replacement test used in the dealership and residential matrices.
If those items were dedicated to a municipality or conveyed to an association, the owner may have no depreciable basis in them. Chapter 7.H’s row for offsite dedicated land improvements transferred to a municipality is residential rental property for the taxpayer who made the transfer — not a rule that every townhome owner depreciates the street.
Documentation
The deed, condominium declaration, plat, and closing statement show what was purchased. An appraisal that allocates land, unit, and personal property is more useful than a tax-assessor ratio copied without analysis. Invoices for in-unit appliances and renovations support personal-property and improvement basis.
Association budgets do not substitute for ownership. A quality study still needs a site visit of the unit the taxpayer owns, photographs of finishes, and a reconciliation to the owner’s actual cost, as Publication 5653 Chapter 4 describes.
Bonus depreciation as of 2026
Qualified property acquired after January 19, 2025 can be eligible for 100% bonus depreciation under Notice 2026-11. A 27.5-year unit shell is not qualified property. In-unit appliances, furniture, and owner-held 15-year site work can be, if the other §168(k) rules are met. Binding contracts dated on or before January 19, 2025 remain on the prior phase-down.
QIP does not apply to residential rental interiors. A later improvement of a 39-year association clubhouse is the association’s issue, not the unit owner’s, unless the owner actually made and placed that improvement in service. Confirm elections with a CPA.
Open issues (flag F-07 and association treatment)
Whether a condo-hotel or short-term listing program is an “establishment more than one-half of the units in which are used on a transient basis” is a statutory facts question. This page describes the test and does not conclude 27.5 versus 39 for any project. Ask a CPA to apply §168(e)(2) and Publication 527 to the occupancy records.
Condominium-association taxation of common elements was not researched in the official sources opened for this inventory. Do not invent a typical reclass percentage for condo studies. Educational information, not tax advice.
Sources
- 1
- 2
- 3IRS Publication 5653 — Cost Segregation Audit Techniques Guide (rev. 2-2025)(opens in a new tab)
Written for IRS examiners. The guide states it is not an official pronouncement of law and cannot be cited as authority. It predates the July 2025 law.
- 4IRS Publication 946 — How To Depreciate Property (2025)(opens in a new tab)
Appendix B reproduces the Rev. Proc. 87-56 class lives.
- 5