Repairs Vs Improvements
The cost of repairs to rental property is a deductible tax expense.
However, the costs of improvements to a property are not deductible in the year paid. Improvements are recovered by taking depreciation.
What is the difference between a repair and an improvement?
A repair keeps your property in good operating condition. It does not materially add value to the property or substantially prolong it’s life. Repainting your property inside or out, fixing gutters or repairing floors, fixing leaks, and replacing broken windows are examples of repairs.
If you make repairs as part of an extensive remodeling or restoration of your property, the whole job is an improvement.
An improvement adds to the value of your property, prolongs its useful life or adapts it to new uses.
If you make an improvement to your property, the cost must be capitalized and depreciated over time.
Examples of improvements
Additions: Bedroom, Bathroom, Deck, Garage, Porch, Patio
Lawn & Grounds: Landscaping, Driveway, Walkway, Fence, Retaining Wall, Sprinkler System, Swimming Pool
Plumbing: Water Heater, Soft Water System, Septic System, Filtration System
Interior: Appliances, Flooring, Wall to Wall Carpet, Kitchen/Bathroom upgrade
Insulation: Attic, Walls and Floor, Pipes/Ductwork
Heating & AC: Heating System, Central AC, Furnace, Duct Work
Miscellaneous: Storm Windows, Doors, New Roof, Central Vacuum, Wiring upgrades, Satellite Dish, Security System
Be sure to separate the costs of repairs and improvements and keep good records and receipts in the event of an IRS audit.