Repairs vs Improvements for Rental Properties

Although this can be a tricky concept it’s well worth the time spent in understanding it. As described in IRS Publication 527, Residential Rental Property, each year when you file your tax forms you can deduct the cost of repairs to a rental property, but you cannot deduct the cost of improvements. You recover the costs of your improvements when you take depreciation for your property. The difference between the two concepts is easier to grasp by looking at some examples.

Repairs

A repair, as the name implies, fixes something that is broken. It doesn’t add to the value of your property or extend its life. Examples of repairs include:

inside or outside painting
repairing gutters
fixing floors
fixing leaks
plastering
replacing broken windows

Improvements

Improvements add to the value of a house prolong its life, or adapts it to new uses. Examples of improvements include adding:

a porch, deck, patio, bedroom or bathroom
landscaping, a driveway a fence or a swimming pool
a heating system or air conditioner
a water heater, soft water system or filtration system
flooring, wall-to-wall carpeting of kitchen modernization
insulating attics walls, floor, pipes or ductwork

Improvement costs are capitalized, meaning that you recover the costs by taking depreciation over time.

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2 Responses to “Repairs vs Improvements for Rental Properties”

  1. […] easy to get carried away on renovation projects – wasting time and money on repairs that buyers won’t pay extra for. I assume you like to do […]

  2. Using depreciation expense also helps companies correctly report assets at their net book value. Companies initially record fixed assets at their original purchase costs

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