On a residential rental, the Residential Rental Property matrix in Chapter 7 of the IRS Cost Segregation Audit Techniques Guide (Publication 5653, revised 2-2025) puts new carpet, sheet vinyl and vinyl composition tile in 5-year property, and puts tile, marble and wood flooring that is fixed in place in the 27.5-year building. The matrix does not say whether that 5-year treatment applies to carpet fixed with permanent adhesive, nails or screws. The guide is guidance for IRS staff, not law, and 27.5 years applies only to a building that is residential rental property under IRC §168(e)(2)(A); other buildings are generally nonresidential real property with a 39-year recovery period under §168(c).
For a calendar-year taxpayer, flooring placed in service (ready and available for its intended use) by December 31, 2026 is depreciated on the 2026 return, so for a late-year replacement the cost segregation questions are which recovery period the new floor takes, whether the cost is capitalized at all, whether bonus depreciation applies and whether the resulting deduction is usable under §469. This post sets out what the guide says row by row, including what it does not say about glued carpet, luxury vinyl plank and laminate.
What does the IRS matrix say about each type of flooring on a residential rental?
The Residential Rental Property matrix (Chapter 7.H) has three flooring rows: permanent floor coverings are section 1250 property with a 27.5-year recovery period, readily removable floor coverings are section 1245 property in asset class 57.0 of Rev. Proc. 87-56 with a 5-year recovery period, and concrete floors are section 1250 property with a 27.5-year recovery period.
| Residential Rental Property matrix row (Chapter 7.H) | What the row says | Property type and period |
|---|---|---|
| Floor Coverings - Permanent | "Includes floor covering that is affixed with permanent adhesive or nailed or screwed in place. Examples include ceramic or quarry tile, marble, paving brick, and other coverings cemented, mudded, or grouted to the floor; epoxy or sealers; and wood flooring." | Section 1250; residential rental property, 27.5 years |
| Floor Coverings - Readily Removable | "Floor covering that is installed by means of strippable adhesives and can be 1) readily removed and remain in substantially the same condition after removal as before, or 2) moved and reused, stored, or sold in its entirety. All vinyl composition tile (VCT), sheet vinyl, and carpeting will be treated as not permanently attached and not intended to be permanent." | Section 1245; asset class 57.0, Distributive Trades and Services, 5 years |
| Floors - Concrete | "Includes concrete slabs and other floor systems. Floors include special treatments applied to, or otherwise made a permanent part, of the floor." | Section 1250; residential rental property, 27.5 years |
The line is how the floor is attached. The readily-removable row says that all vinyl composition tile, sheet vinyl and carpeting will be treated as not permanently attached and not intended to be permanent, and the permanent row's examples list no carpet. The matrix does not say whether the readily-removable row's sentence on all carpeting applies to carpet fixed with permanent adhesive, nails or screws, which the permanent row's first sentence describes in general terms; the pharmaceutical and biotechnology matrix, by contrast, lists carpeting attached that way as 39-year property.
The word tile covers two things in the matrix. Ceramic tile, quarry tile, marble and paving brick are in the permanent row and stay with the 27.5-year building, while vinyl composition tile is in the readily-removable row. Wood flooring is also in the permanent row.
Luxury vinyl plank, laminate and engineered wood are not named in any matrix, and the guide does not use the terms plank, laminate or engineered wood. The readily-removable row's description is strippable adhesive plus either that the floor can be readily removed and remain in substantially the same condition or that it can be moved and reused, stored, or sold in its entirety. The guide does not say how that description applies to a click-lock, floating or glued plank, so the guide assigns no category to a plank floor; the multifamily apartment cost segregation post lists readily removable vinyl plank among its 5-year items, which is that post's own classification and not a row of the guide.
Under IRC §168(e)(2)(A), a building is 27.5-year residential rental property only if 80% or more of its gross rental income for the taxable year (counting the rental value of any part the taxpayer occupies) is rental income from dwelling units, and under §168(e)(2)(A)(ii) a unit in a hotel, motel or other establishment more than half of whose units are used on a transient basis is not a dwelling unit, so a building rented mostly to short-term guests can be 39-year nonresidential real property instead. The matrix treats a separate rental office or clubhouse building as nonresidential real property recovered over 39 years rather than the 27.5 years of the apartments (Chapter 7.H.1), so permanently attached flooring in that building is part of a 39-year building.
How do the other Chapter 7 matrices word the flooring rows?
The other Chapter 7 matrices use a similar two-row pattern with their own examples and recovery periods, and the retail, pharmaceutical and biotechnology, casino and gaming and auto dealership matrices each say that the general fact patterns behind their classifications may not be applicable to other industries (the restaurant and auto manufacturing matrices carry no such sentence).
| Matrix | Permanent row (section 1250) | Strippable-adhesive row (section 1245) |
|---|---|---|
| Retail (7.B) | Affixed with permanent adhesive, nailed, or screwed in place, including ceramic or quarry tile, marble, paving brick and wood flooring: 39 years. | Installed with strippable adhesives; for the retail industry all VCT, sheet vinyl and carpeting are treated as not permanently attached; also flooring that is frequently moved and reused for a department theme or seasonal display: asset class 57.0, 5 years. |
| Restaurant (7.C) | The same permanent-attachment wording: 39 years. | Installed with strippable adhesives; for the restaurant industry all carpeting (the sentence names no VCT or sheet vinyl) is treated as not permanently attached; excludes rugs or tapestries that are artwork: asset class 57.0, 5 years. |
| Pharmaceutical and biotechnology (7.D) | Includes VCT, sheet vinyl, carpeting or wood attached with permanent adhesive, nails or screws, and paint, epoxy, coatings and sealers applied directly to the floor: 39 years. | Installed with strippable adhesives and either readily removed in substantially the same condition or moved and reused, stored or sold in its entirety: personal property, with the recovery period depending on the use of the property. |
| Casino and gaming (7.E) | Permanent attachment, with "most vinyl coverings" among the examples: 39 years (40 years for purposes of §168(g)). | Not permanently attached (VCT with strippable adhesive, sheet vinyl, carpeting): 7 years (asset class 79.0, Recreation) in the casino area and for activities such as a theater or showroom, and 5 years (asset class 57.0) elsewhere. |
| Auto dealership (7.F) | Permanent-attachment wording as above: 39 years. | Strippable adhesives; for the auto dealership industry all VCT, sheet vinyl and carpeting are treated as not permanently attached: asset class 57.0, 5 years. |
| Auto manufacturing (7.G) | Permanent attachment: nonresidential real property, 39 years. | Strippable adhesives and readily removed without damaging the underlying floor, including VCT, sheet vinyl and carpeting: asset class 37.11, 7 years. |
The retail cost segregation page and the restaurant cost segregation post cover the retail and restaurant matrices for those industries. The periods in the table are the matrices' own. An interior improvement a taxpayer makes to a nonresidential building after it was first placed in service can instead be 15-year qualified improvement property under §168(e)(6), as the nonresidential section below sets out.
Chapter 7 has matrices for those six industries and for residential rental property, and none for office, industrial or self-storage buildings (Chapter 7.A). The retail matrix describes itself as intended for property used in the operation of a retail business such as a department or grocery store, and the residential rental matrix says that asset classification guidance issued for other industries may not be applicable to residential rental property.
Does the IRS matrix bind a taxpayer, and where does its attachment line come from?
The matrix does not bind a taxpayer: the guide states on its cover page that it "is not an official pronouncement of the law or the position of the Service and cannot be used, cited, or relied upon as such," and Chapter 7.A says the same of the industry directives it collects, which contain the matrices.
Chapter 7.A describes the matrices as tools to reduce unnecessary disputes and foster consistent treatment on examination. For residential rental property, if the taxpayer's return position for these assets is consistent with the recommendations in the matrix, the guide says no adjustments to categorization and recovery periods should be made, and if the taxpayer reports assets differently, adjustments should be considered (Chapter 7.H.1). That sentence tells IRS staff how to proceed; it is not a statement of what the law requires.
The attachment line comes from the investment tax credit rules. The guide quotes the Senate report on the Revenue Act of 1978 (S. Rep. No. 1263, 95th Cong., 2d Sess. 117 (1978)), which described floor coverings that are not an integral part of the floor itself, such as floor tile generally installed in a manner to be readily removed (not cemented, mudded or otherwise permanently affixed, but with adhesives designed to ease its removal) and carpeting, as tangible personal property and not structural components.
The guide's table of court decisions describes Hospital Corp. of America v. Commissioner, 109 T.C. 21 (1997), as the landmark case applying the investment tax credit criteria to decide section 1245 status for depreciation (the IRS acquiesced in part and did not acquiesce in part, AOD 1999-008), and lists carpeting and vinyl floor covering as section 1245 property in the row for that case. It also lists floor coverings (carpet, vinyl, or tile) as section 1250 property in the row for Walgreen Co. v. Commissioner, T.C. Memo. 1996-374, so the decisions it collects do not all point one way.
On the building side, the guide quotes Treas. Reg. §1.48-1(e)(2), which includes in a building's structural components floors and ceilings "as well as any permanent coverings therefor such as paneling or tiling."
What does IRS Publication 527 say about carpet on a rental?
Publication 527 (2025) lists carpets as 5-year property under the general depreciation system and 9-year property under the alternative depreciation system in Table 2-1, and it says the 5-year class also includes appliances, carpeting and furniture used in a residential rental real estate activity.
The publication does not mention tile or vinyl, and it names flooring only in its Table 1-1, which lists flooring and wall-to-wall carpeting among examples of interior improvements, so the repair-or-improvement question comes before the recovery period.
What recovery period does flooring take in an office, industrial or other nonresidential building that is rented out?
Permanently attached flooring in a nonresidential building that is rented out is part of the 39-year building under §168(c), unless the owner adds it as an improvement that is 15-year qualified improvement property under §168(e)(6).
Qualified improvement property is any improvement made by the taxpayer to an interior portion of a nonresidential building, placed in service after the date the building was first placed in service; it excludes expenditures attributable to the enlargement of the building, an elevator or escalator, or the internal structural framework (§168(e)(6)(A) and (B)), and it is not available for a residential rental building. Its 15-year recovery period (§168(e)(3)(E)(vii)) also makes it eligible for bonus depreciation, which reaches property with a recovery period of 20 years or less (§168(k)(2)(A)(i)(I)). The qualified improvement property post covers the definition.
The guide has no matrix for an office or industrial building. For carpeting there, Chapter 1 says that a study might report carpeting as section 1245 property that likely would have been grouped with the building, and that such items "may or may not constitute § 1245 property depending on the particular facts and circumstances for which the project was designed"; its other guidance is the investment tax credit authorities and court decisions described above, with no recommended category.
Does the repair-or-improvement question come before the flooring recovery period?
Flooring cost is depreciated only if it is capitalized, so the tangible property regulations come first: the de minimis safe harbor in Treas. Reg. §1.263(a)-1(f) and the routine maintenance safe harbor in Treas. Reg. §1.263(a)-3(i) can allow a current deduction, and a cost segregation study does not turn a deductible repair into depreciable property. The repair-versus-improvement safe harbors post sets out both safe harbors and the betterment, restoration and adaptation tests.
For a calendar-year taxpayer, when is new flooring placed in service for the 2026 return?
For a calendar-year taxpayer, flooring is depreciated on the 2026 return only if the owner places it in service (ready and available for its intended use) by December 31, 2026, because property is placed in service when it is in a condition or state of readiness and availability for a specifically assigned function (Treas. Reg. §1.46-3(d)(1)(ii) and §1.167(a)-11(e)(1)(i)).
Flooring that has been delivered or paid for but is not installed and ready for use is not in that state. Publication 527 applies the test to rental property: property is in service when it is ready and available for its specific use even if the owner is not using it, and its example is a dishwasher delivered on December 7 that was not installed and ready for use until January 3, which is not considered placed in service until the later year.
For a calendar-year taxpayer, flooring first ready and available on January 1, 2027 or later is first depreciated on the 2027 return. The regulations state the test and give no flooring-specific rule, so how it applies to a floor in a unit under renovation depends on the facts. A taxpayer on a fiscal year tests against the end of its own tax year. The placed-in-service date for calendar-year rental depreciation post covers the date in more detail.
How do bonus depreciation and the mid-quarter convention apply to flooring placed in service late in 2026?
Flooring that is 5-year property can be qualified property for bonus depreciation under §168(k) because its recovery period is 20 years or less, while flooring that is part of the 27.5- or 39-year building is not, because bonus depreciation does not reach property with a longer recovery period (§168(k)(2)(A)(i)(I)).
Bonus depreciation under IRC §168(k) is 100%, permanently, for qualified property acquired after January 19, 2025 (OBBBA, 2025-07-04), or, for self-constructed property, whose construction began after that date; qualified property acquired on or before that date stays on the TCJA phase-down (as does self-constructed property begun on or before it) by placed-in-service year: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% after that, with each rate one year later for long-production-period property and certain aircraft (§168(k)(6)(B)). For that test the acquired date is not the closing date: under IRS Notice 2026-11 property bought under a written binding contract is acquired on the latest of the date the contract was signed, the date it became enforceable under state law, the end of any cancellation period and the date any contingency was satisfied, under a contract that is not binding (for example, one that limits damages to a specified amount) it is generally when more than 10 percent of the total cost, excluding land and preliminary activities, has been paid or incurred, and self-constructed property, including property built for the taxpayer under a written binding contract signed before construction began, is acquired when physical work of a significant nature begins (Treas. Reg. §1.168(k)-2(b)(5)); and used property qualifies only if the taxpayer had not used it at any time before acquiring it and the acquisition meets the §179(d) purchase rules that §168(k)(2)(E)(ii) applies (for example, it was not acquired from a related party, by gift or inheritance, or with a carryover basis).
Carpet that the owner buys new and has installed is original-use property under §168(k)(2)(A)(ii), while flooring that was already in service in a building before the owner bought it is used property, and used property qualifies only if the taxpayer had not used it at any time before acquiring it and the acquisition meets the §179(d) purchase rules that §168(k)(2)(E)(ii) applies (for example, it was not acquired from a related party, by gift or inheritance, or with a carryover basis).
For a calendar-year taxpayer, 5-year flooring placed in service from October 1 through December 31, 2026 counts toward the §168(d)(3) test, which applies the mid-quarter convention to all of the year's property other than residential rental and nonresidential real property (Treas. Reg. §1.168(d)-1(a)) when more than 40% of its aggregate basis went into service in those three months. Bonus depreciation does not reduce the basis counted in the test (Treas. Reg. §1.168(k)-2(g)(11)), but a §179 election does (Treas. Reg. §1.168(d)-1(b)(4)(i)). Under the convention, §168(d)(4)(C) treats fourth-quarter property as placed in service at the mid-point of the quarter, which gives one and a half months of first-year regular depreciation, while bonus depreciation is figured on the unadjusted depreciable basis (Treas. Reg. §1.168(k)-2(e)(1)(ii)), so the convention matters mainly for the part of the basis on which bonus is not claimed; the mid-quarter convention and fourth-quarter property works through it.
Can a cost segregation study help when old flooring was removed, or was never separated from the building?
A cost segregation study can help with old flooring that sits inside the building's depreciation account by allocating the account's cost to components so the retired portion's basis can be figured, but the partial disposition election itself is made on the return and not by the study. Without the election, the retired portion stays in the account and keeps being depreciated, because apart from the transactions the regulation lists (such as a sale of a portion or a casualty event), a disposition includes a portion of an asset only if the taxpayer makes the election (Treas. Reg. §1.168(i)-8(d)(1)).
The election is generally made by reporting the loss on the timely filed original return, including extensions, for the year of the disposition (Treas. Reg. §1.168(i)-8(d)(2)). When it is impracticable from the taxpayer's records to determine the unadjusted depreciable basis of the retired portion, the regulation allows any reasonable method, and a study allocating the cost of the asset to its individual components is one example (Treas. Reg. §1.168(i)-8(f)(3)(i)).
If the whole of the old flooring was already depreciated as its own asset, for example after an earlier study, retiring all of that asset is a disposition of the asset and needs no partial disposition election, because a disposition includes the retirement or physical abandonment of an asset (Treas. Reg. §1.168(i)-8(b)(2)); retiring only part of such an asset, such as the flooring in some of the units it covers, is again a portion of an asset and needs the election. The partial asset disposition post and the renovation removal costs post cover the election and the cost of removal.
For a calendar-year taxpayer, flooring placed in service in 2026 goes on the original 2026 return and needs no Form 3115. Flooring placed in service in an earlier year and still depreciated inside the 27.5- or 39-year building account is a different case. Under the automatic change procedures of Rev. Proc. 2015-13 and section 6.01 of Rev. Proc. 2025-23, the missed depreciation is claimed on Form 3115 with no amended returns when the property has been depreciated on two or more filed returns, or on one filed return if the taxpayer placed it in service in the tax year immediately before the year of change (the year of the return the Form 3115 is filed with), and the taxpayer still owned the property at the start of the year of change and meets the other eligibility rules. A prior election out of bonus depreciation cannot be undone through this change (section 6.01(1)(c)(vi) of Rev. Proc. 2025-23). The Form 3115 catch-up depreciation post covers it.
When is a flooring cost segregation study worth doing?
A cost segregation study is worth it when three conditions hold together: the basis is large enough for the accelerated deductions to outweigh the cost of the study, the deduction is usable this year given the owner's passive-activity position, and the hold is long enough to survive recapture. All three, or the honest answer is no. A flooring replacement in a few units can be too small a basis to meet the first condition, while a study of a whole building or a larger renovation can classify its flooring along with its other components.
A rental activity is a passive activity under §469(c)(2) unless an exception applies, and a passive loss that passive income does not absorb is disallowed under §469(a) and carried forward under §469(b). Under §469(i), an individual who actively participates in a rental real estate activity (a separate test from material participation, and one that requires an interest of at least 10% by value (a spouse’s interest counts) throughout the year) is exempt from the §469(a) disallowance for up to $25,000 of loss from the rental real estate activities in which the individual actively participates; the $25,000 is reduced by 50% of modified adjusted gross income above $100,000 and is gone at $150,000, and for a married individual filing separately it is $12,500, phasing out between $50,000 and $75,000, only if the spouses lived apart for the entire year, and zero if they lived together at any time during the year.
Under §469(c)(7), a taxpayer is a real estate professional only if more than one-half of the personal services the taxpayer performs in trades or businesses during the year are performed in real property trades or businesses in which the taxpayer materially participates, and the taxpayer performs more than 750 hours of services during the year in real property trades or businesses in which the taxpayer materially participates (on a joint return, one spouse must meet both tests alone); the rental loss is then nonpassive only if the taxpayer also materially participates in that rental activity, with each rental tested separately unless the election under Treas. Reg. §1.469-9(g) to treat all interests in rental real estate as one activity was made. A nonpassive rental loss can offset wages or other nonpassive income only when the basis rules, the at-risk limits under §465 and the excess business loss limit under §461(l) also allow the loss. The passive activity loss post covers both routes.
Cost segregation accelerates deductions; over the life of the building the same basis is recovered. On a taxable sale at a gain, recapture applies, up to the amount of that gain, however long the property was held, outside the Opportunity Zone 10-year rule (a qualifying investment held 10 years with the IRC §1400Z-2(c) election): §1245 recapture on the 5- and 7-year property is ordinary income, as is §1250 recapture of the depreciation taken above straight-line (bonus included) on 15-year land improvements held more than one year, and the rest of the depreciation on those land improvements and on the 27.5- or 39-year structure is unrecaptured §1250 gain, taxed at up to 25% for a noncorporate taxpayer.
For the general rental case, see rental property cost segregation, and if you are comparing providers, our guide to the best cost segregation companies sets out what to ask. The next step is the cost segregation qualifier.
Related reading: Bonus Depreciation in 2026: What Real Estate Owners Need to Know, The January 19, 2025 Line: How the Acquired-Date Test Sets Your Bonus Depreciation Rate and Bonus Depreciation Phase-Down in 2026: The Rate for Property Acquired Before Jan. 20, 2025.
Frequently Asked Questions
Is new carpet 5-year property for depreciation on a residential rental?
New carpet on a residential rental is 5-year property in the IRS Residential Rental Property matrix, which treats all carpeting as not permanently attached and places it in asset class 57.0 of Rev. Proc. 87-56, and Publication 527 lists carpets as 5-year property used in a residential rental real estate activity. The matrix is guidance for IRS staff, not law, and the 5-year result applies to the cost only if it is capitalized rather than deducted as a repair. The matrix does not say whether its all-carpeting treatment applies to carpet fixed with permanent adhesive, nails or screws.
Is tile or wood flooring 27.5-year property on a residential rental?
Ceramic or quarry tile, marble, paving brick and wood flooring that is cemented, mudded, grouted, nailed, screwed or fixed with permanent adhesive is part of the 27.5-year building in the IRS Residential Rental Property matrix, but only when the building is residential rental property. Under IRC §168(e)(2)(A), a building is 27.5-year residential rental property only if 80% or more of its gross rental income for the taxable year (counting the rental value of any part the taxpayer occupies) is rental income from dwelling units, and under §168(e)(2)(A)(ii) a unit in a hotel, motel or other establishment more than half of whose units are used on a transient basis is not a dwelling unit, so a building rented mostly to short-term guests can be 39-year nonresidential real property instead.
Can luxury vinyl plank or laminate be 5-year property through cost segregation?
The IRS guide does not say whether luxury vinyl plank or laminate is 5-year property, because no Chapter 7 matrix names plank, laminate or engineered wood and the guide does not say how the readily-removable row's description (installed by means of strippable adhesives, and either readily removed in substantially the same condition or moved and reused, stored, or sold in its entirety) applies to a click-lock, floating or glued plank.
Does flooring placed in service by December 31 qualify for the 2026 return?
For a calendar-year taxpayer, flooring placed in service (ready and available for its intended use) by December 31, 2026 is depreciated on the 2026 return under Treas. Reg. §1.46-3(d)(1)(ii). Flooring that is delivered but not installed and ready for use is not placed in service, and for a calendar-year taxpayer flooring first ready and available on January 1, 2027 or later is first depreciated on the 2027 return.
Is the IRS Cost Segregation Audit Techniques Guide binding on a taxpayer?
The guide does not bind a taxpayer, because it states that it is not an official pronouncement of the law or the position of the Service and cannot be used, cited, or relied upon as such. Its Residential Rental Property matrix recommends categories and recovery periods to IRS staff and says that a return position consistent with it should not be adjusted, while a taxpayer who reports assets differently may see adjustments considered.
Can a cost segregation study help with old flooring removed during a replacement?
A cost segregation study can help with old flooring that sits inside the building's depreciation account by allocating the account's cost to components, so that the retired portion's basis can be figured for a partial disposition election under Treas. Reg. §1.168(i)-8(d). The study is one reasonable method under §1.168(i)-8(f)(3)(i) when it is impracticable to determine the basis from the records, not a requirement, and the election is generally made on the timely filed original return for the year of the disposition.