Rental Home question

snipped-for-privacy@hotmail.com posted:

Both items you describe are significant improvements, which should be depreciated over 27.5 years. However, there are special, shorter depreciation periods available if your rental property is located in the "Gulf Opportunity Zone" and under other special conditions. Also, if the roof were damaged -- as from a weather event -- it might be considered a repair. Generally, though, you're looking at 27.5 year-depreciation whenever you're dealing with a residential rental property "improvement." You can read all about it, in Pub 527. It's available online, in html. I just browsed it briefly, as I was preparing this response, and here's a link:

Bill

In each case I'd consider them to be a new asset, with 27.5 year expensing.

-- ArtKamlet at a o l dot c o m Columbus OH K2PZH

Capital improvements are not deducted in the year of expenditure, but added to your cost basis and depreciated annually. Straight line is 27.5 years. The same would apply to your new roof.

Here are capital improvements, and depreciable over the next

27.5 years; not 20 (which used to be the case "way back when.") ChEAr$, Harlan Lunsford, EA n LA

Section 179 depreciation is not allowed on rental properties. Regards,

Mark

What happens to the remaining costs of the old windows and roof?

I doubt you have segregated costs for those items from the initial purchase, or for that matter, from construction records.

Generally the house cost basis continues to be depreciated over time with no change in it's initial basis because you stripped off the shingles or replaced windows or doors. As I recall, replacing shingles is treated as a repair expense unless you start replacing the roof deck or other roof structural systems.

-- Paul A. Thomas, CPA Athens, Georgia

I am having trouble reconciling this answer to Art's original answer.

Five shingles here, ten shingles there, that's maintenance.

Replacing much or all of the shingles, that's a separate new asset, 27.5 years.

-- ArtKamlet at a o l dot c o m Columbus OH K2PZH

Replacing the entire roof makes for a new asset.

Replacing a few shingles is a repair to the roof.

Seth

"Arthur Kamlet" wrote

The facts and circumstances may lead to a different deduction, as seen here:

IRB 2006-39 (Sept 25, 2006) talks about expensing roof replacement as repairs if it doesn't increase the value of the property, and that it is a capital improvement if it gets into replacing structural components. Reg §1.167(a)-11 (2) Treatment of repairs. (i) In general. (a) Sections 162, 212, and 263 provide general rules for the treatment of certain expenditures for the repair, maintenance, rehabilitation or improvement of property. In general, under those sections, expenditures which substantially prolong the life of an asset, or are made to increase its value or adapt it to a different use are capital expenditures. If an expenditure is treated as a capital expenditure under section 162, 212, or 263, it is subject to the allowance for depreciation. On the other hand, in general, expenditures which do not substantially prolong the life of an asset or materially increase its value or adapt it for a substantially different use may be deducted as an expense in the taxable year in which paid or incurred. Expenditures, or a series of expenditures, may have characteristics both of deductible expenses and capital expenditures. Other expenditures may have the characteristics of capital expenditures, as in the case of an "excluded addition" (as defined in subdivision (vi) of this subparagraph). This subparagraph provides a simplified procedure for determining whether expenditures with respect to certain property are to be treated as deductible expenses or capital expenditures. I'd be looking at total costs for the roof work compared to the cost of the building, and if there is a change from say, asphalt shingles to a metal roof.

-- Paul A. Thomas, CPA Athens, Georgia

All posts seem to take the position that this is an improvement. I am not so sure. If they are replacing existing windows, and do not add materially to the use to which the property can be put, and do not appreciably extend the useful life of the property or substantially increase its value, they are repairs. Even replacing a roof is a repair if it meets this test. Never mind what the IRS says, look at the statute and relevant judicial decisions. Having said that, keep in mind that the IRS takes the position "never mind the statute and relevant judicial decisions, we are the IRS and do what we want".

New windows significantly increase the value of the home. It is something that buyers look for and consider important. A new roof appreciably extends the useful life of the building.

Bob Sandler

this is really a case-by-case analysis.