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