hi,

I did the following in my rental property. Could you please advise me what items can be deducted 100% as loss this year and what items need to be depreciation along many years?

1. replace range hood - cost $262
2. replace bathtub shower glass door - cost $250
3. replace toilet - cost $178
4. replace bathroom faucet - cost $98
5. redone bathroom floor. It was tile but damaged due to fungus so I just replaced with new tile. - cost $700

Thanks,
Jen

“I did the following in my rental property. Could you please advise me what items can be deducted 100% as loss this year and what items need to be depreciation along many years?”=============> UNLIKE repairs made to your personal residence, rental property repair costs that are incurred to place the property in rentable condition or to maintain it are deductible on Sch E of your personal 1040 tax return( however, capital improvements must be depreciated over the useful life of the property on IRS form 4562. Only a percentage of these expenses are deductible in the year they were incurred). A repair keeps your rental property in good condition and is a deductible expense in the year that you pay for it. Repairs include painting, fixing a broken toilet and replacing a faulty light switch. Improvements on the other hand, add value to your property and are not deductible when you pay for them. You must recover the cost of improvements by depreciating the expense over your property's life expectancy. Improvements can include a new roof, patio or garage.


“1. replace range hood - cost $262”========> This is an improvement rather than a repair. you need to depreciate the costs as improvements.
“2. replace bathtub shower glass door - cost $250”=====> This is a repair maintenance that is necessary to keep the property in working condition.
“3. replace toilet - cost $178”==========> This is an improvement rather than a repair. you need to depreciate the costs as improvements.
“4. replace bathroom faucet - cost $98”=========> This is a repair maintenance that is necessary to keep the property in working condition.
“5. redone bathroom floor. It was tile but damaged due to fungus so I just replaced with new tile. - cost $700”================> This is a repair maintenance that is necessary to keep the property in working condition.
NOTE: For tax purposes, as well as for potential appreciation of your property, it is very important to understand the difference between making an improvement and making a repair to your rental property. They have different tax implications, as well as different effects on the value of your property.
You MUST deduct the exp in the following order;1. Home mort int, r/e taxes, casualty and theft losses and rental exp not directly related to the rental pty(mgmt. fees, adv setc). 2. All other rental exp other than depre. 3. Depre exp.

SO, you need to maintain good records. To deduct rental repairs, you must be able to document the write-off. Find a safe place to store all of your receipts, canceled checks and bank statements. ALSO, you need to keep track of any travel expenses you incur for rental property repairs. You are allowed to take the standard mileage rate or deduct actual expenses. You can deduct the business portion of necessary travel expenses for airfare, meals and lodging when traveling out of your immediate area. You should fill out Sch E and form 4562. List the total of your expenses for repairs on Sch E, line 16. Carry over your depreciation deduction from form 4562 and list it on line 20.

hi,

Could you please advise on the number of years/method to depreciate for the list of items?

1. rang hood
2. toilet

Also, I am kind of not understanding why they are improvement categories. They are not working so I replaced them. Let's say the tenants can't live in the house without the range hood or toilet working properly, so why are they improvements and not repairing?

thanks,
Jen

If you make capital improvements to real estate you own---an improvement that substantially adds to the value of a building you use for business or rent out---you can claim it as a deduction. You can't, however, take the entire deduction off your taxes the same year you make the improvements. Instead, you have to depreciate the improvement investment over the years, 27.5 years.For example: assume that you own a rental home that you have been renting since 1997. If you put an addition on the home and place the addition in service this year, you would use MACRS to figure your depreciation deduction for the addition. Under the General Depreciation System (GDS), the property class for the addition is residential rental property and its recovery period is 27.5 years because the home to which you made the addition is made would be residential rental property.


"Let's say the tenants can't live in the house without the range hood or toilet working properly, so why are they improvements and not repairing?""=======================>I guess it has nothing to do with living condition of a tenant ; however, it is as the addition of a permanent structural improvement or the restoration of some aspect of a property that will either enhance the property's overall value or increases its useful life

Hi,

For repairs and depreciation records, what should be used for proof of that? Will receipts of purchase good enough? and how long do I need to keep the records?

thanks,
Jen

I guess yo can determine whether your project is an improvement or a repair. Legalmatch.com says an improvement adds value to the property, prolongs its life or adds a use---a hot tub on the deck, hurricane shutters, a new garage. Repairs don't add to the value of the property but keep it in good operating condition. For example, fixing a roof after a storm counts as a repair; installing a new roof is an improvement, according to the IRS.So, you should keep and file receipts for everything you spent on the improvements. This includes supplies, rental trucks and whatever you paid to hire workers for the project. These figures, totaled, are the costs you will be able to amortize over the next three decades.You can make a folder and save all of your receipts and records for any improvements you make to your home. If you're audited, the IRS will want to see them. The first piece of information should be an appraisal of the home. This establishes a basic value that can be compared to a later appraisal after the home improvement. Keep all receipts for materials and invoices for labor on every aspect of the project for future tax deductions.



NOTE: Although most capital improvements are not deductible expenses, you may be able to deduct the interest on any loan you take out for the purpose of making those capital improvements for business purposes ;so,Don't forget to keep records on the interest from a loan that goes toward the home improvement. Whether you've taken out a home equity loan or other type of loan, the interest can be included as a tax deduction on your taxes. Sales tax can also be deducted for materials purchased for the home improvement