I'm making my annual attempt to understand the rules around which
"repairs" to residential rental properties can be fully deducted in the
year in which the expense was incurred.

One thing that puzzles me is the seeming consensus that repainting a
rental property between tenants is a deductible expense. How can this
not be considered a restoration, which would require capitalization?

Any insights into the reasoning would be appreciated.

Thanks!

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Ian Pilcher <arequipeno@gmail.com> wrote:

I'm making my annual attempt to understand the rules around which
"repairs" to residential rental properties can be fully deducted
in the year in which the expense was incurred.

One thing that puzzles me is the seeming consensus that repainting
a rental property between tenants is a deductible expense. How
can this not be considered a restoration, which would require
capitalization?

Here's what the IRS has to say:

"By itself, the cost of painting the exterior of a building is
generally a currently deductible repair expense because merely painting
isn't an improvement under the capitalization rules.

"However, if the painting directly benefits or is incurred as part of a
larger project that's a capital improvement to the building structure,
then the cost of the painting is considered part of the capital
improvement and is subject to capitalization."

There's also a safe harbor for projects (based on individual invoices)
that cost under $2500. The IRS allows you to treat them as deductible
even if they might otherwise be considered capital improvements.


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Stu
http://DownToEarthLawyer.com


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On 3/12/2023 12:15 AM, Ian Pilcher wrote:

I'm making my annual attempt to understand the rules around which
"repairs" to residential rental properties can be fully deducted in the
year in which the expense was incurred.

One thing that puzzles me is the seeming consensus that repainting a
rental property between tenants is a deductible expense. How can this
not be considered a restoration, which would require capitalization?

Any insights into the reasoning would be appreciated.

Thanks!

Because it doesn't extend the life of the property.

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Stuart O. Bronstein <spamtrap@lexregia.com> wrote:

Ian Pilcher <arequipeno@gmail.com> wrote:

I'm making my annual attempt to understand the rules around which
"repairs" to residential rental properties can be fully deducted
in the year in which the expense was incurred.

One thing that puzzles me is the seeming consensus that repainting
a rental property between tenants is a deductible expense. How
can this not be considered a restoration, which would require >>capitalization?

Here's what the IRS has to say:

"By itself, the cost of painting the exterior of a building is
generally a currently deductible repair expense because merely painting
isn't an improvement under the capitalization rules.

"However, if the painting directly benefits or is incurred as part of a >larger project that's a capital improvement to the building structure,
then the cost of the painting is considered part of the capital
improvement and is subject to capitalization."

There's also a safe harbor for projects (based on individual invoices)
that cost under $2500. The IRS allows you to treat them as deductible
even if they might otherwise be considered capital improvements.

Do you recall if this gets inflated every year?

I have not looked any of the following up, but logically (logic having
nothing to do with the tax code), paint lasts the same amount of time
whether if it's applied finishing a construction project or as part of
ongoing building maintainence.

If the taxpayer carefully separated my bills for the building reconstruction project into two piles -- durable versus nondurable portions of the project
-- and expensed the nondurable parts of the project, would IRS challenge
that position? If the contractor's time was itemized separately, is that
an expense rather than capitalized into the project?

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Ian Pilcher <arequipeno@gmail.com> wrote:

Taxed and Spent wrote:

Because it doesn't extend the life of the property.

Neither does replacing a broken built-in microwave, but the IRS is
very clear that appliances must be capitalized.

But a microwave has its own useful life that is longer than one year.

It doesn't always make sense because the line between repairs and
capital improvements can be thin. That's why there are specific rules
for specific things.


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Stu
http://DownToEarthLawyer.com


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On 3/12/23 13:24, Taxed and Spent wrote:

Because it doesn't extend the life of the property.

Neither does replacing a broken built-in microwave, but the IRS is very
clear that appliances must be capitalized.

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Ian Pilcher <arequipeno@gmail.com> wrote:

On 3/12/23 13:24, Taxed and Spent wrote:

Because it doesn't extend the life of the property.

Neither does replacing a broken built-in microwave, but the IRS is very
clear that appliances must be capitalized.

Despite the attachment, it's personal property under federal tax law,
although the attachment may make it real property under state law. Attached personal property is neither a repair nor improvement to the building.

You may also elect the Section 179 expense deduction in which you are effectively NOT capitalizing it. Looking it up, it's up to $1.08 million
for 2022 and $1.16 million for 2023.

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