Phan Tax Service, LLC | Rental Property Repair Versus Rental Property Improvement

Rental Property Repairs Versus Improvements

Everything you spend to fix the real property is classified is either repairs or improvements. The cost of repairs is a current year expense, fully deductible. The cost of improvements is a capital expenditure, only partially deductible through depreciation.

What is a Repair?

According to IRS Publication 527, a repair is something that you do to your property that maintains its original condition. For example, if a tenant punches a hole in a wall and you replace or patch the damaged drywall, you could claim it as a repair. Repairs do not necessarily need to be small. Replacing broken windows or repairing a plumbing leak, even if it runs into the thousands of dollars, would count as a repair as well. Some typical examples of rental property repair: repainting, wall-papering, fixing leaks, plastering, fixing broken windows, replacing door locks, patching damaged carpet, patching vinyl or tile flooring, fixing gutters, etc.

What is an Improvement?

Improvements are things that you do to your property that add value. Adding a pool or building a garage would count as an improvement. Improvements also include replacement of major systems or components of the property it results in a betterment to your property, restores your property, or adapts your property to a new or different use.. For instance, installing a new roof when the old one was extremely leaky and in need of repair is an improvement that adds value to your home, as is replacing a broken water heater with a new one. According to the IRS, the addition or upgrade of the following items must definitively be capitalized and depreciated over multiple years.

Heating & Air Conditioning Heating system Central air conditioning Furnace Duct work Central humidifier Filtration system	Lawn & Grounds Landscaping Driveway Walkway Fence Retaining wall Sprinkler system Swimming pool	Miscellaneous Storm windows, doors New roof Central vacuum Wiring upgrades Satellite dish Security system Attic, Wall, Floor Insulation
Additions Bedroom Bathroom Deck Garage Porch / Patio	Plumbing Septic system Water heater Soft water system Filtration system	Interior Improvements Built-in appliances Kitchen modernization Flooring Wall-to-wall carpeting