Improvements versus Repairs
What Can be Deducted and What Must be Depreciated?
It is often difficult to determine which repairs and
improvements you made to rental property qualifies as a current expense,
and which must be depreciated.
There is a general rule stating that if the repair
merely returns the property to its normal working condition, it is most
likely a current expense. Examples of these types of repairs include
replacing light fixtures, windowpanes, torn shingles, or other incidental
repairs to your property.
Major improvements such as a new roof, siding, a driveway, extensive
renovation, or a new addition generally are capitalized and depreciated
over the life of the building. Other improvements like new carpeting,
furnaces, and air conditioners are also depreciated, but over a shorter
The differences between what may qualify as a repair
instead of an improvement were recently narrowed by two tax court
decisions. In both those cases, rental property owners paid for
replacement of leaking and damaged roofing which threatened further damage
to the building structure if not repaired. The courts held in both
cases that the roof repair was required to prevent further damage and
restore the building to its original condition, not to extend the life of
the property, so the full cost could be taken as an expense deduction in
the year of the repair. Note that these cases are not considered
definitive legal precedent, but can be viewed as indications of how tax
court judges are thinking on this issue. Consult a tax professional
for detailed guidance regarding your specific situation.