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There is no strict definition what is considered capital improvements and what repairs.
IRS determines Improvements as those that add to the value of your home, prolong its useful life, or adapt it to new uses. You add the cost of additions and other improvements to the basis of your property.
The following chart lists some other examples of improvements.
According to the IRS repairs maintain your home in good condition but do not add to its value or prolong its life. You do not add their cost to the basis of your property. Examples. Repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering, and replacing broken window panes are examples of repairs. Exception. The entire job is considered an improvement if items that would otherwise be considered repairs are done as part of an extensive remodeling or restoration of your home. For example, if you have a casualty and your home is damaged, increase your basis by the amount you spend on repairs that restore the property to its pre-casualty condition.
Please see for reference IRS publication 523 page 9-10 - http://www.irs.gov/pub/irs-pdf/p523.pdf
This is a business building. Actually it involved black mold inside the building and wood rotted on the outside of the building. Do the same guidelines apply for businesses that apply to homes? This action had to be taken to continue to inhabit the building. They had to be done to "prolong the life of the facility." Would this be considered capital improvement?
Yes - capital improvements vs repairs classification would be the same for business or for personal properties. Following are definitions:
Improvements add to the value to the property, prolong its useful life, or adapt it to new uses.
Repairs maintain the property in good condition but do not add to its value or prolong its life.
You may disagree with the IRS agent in interpretation of the specific expenses - and sometimes they may be viewed either way....
The IRS recently concluded that the cost of mold removal and remediation is treated as an ordinary and necessary business expense and deductible in the year paid. The removal of mold is necessary because the health of the people in the building will be affected and mold remediation does not add value to the property.
However if the mold remediation is the part of a renovation plan that includes the entire property - the entire cost should be capitalized.
According to IRS Private Letter RulingNNN-NN-NNNN- http://www.irs.gov/pub/irs-wd/0607003.pdf
the tax treatment of the cost that increases the useful life of a building, add value to it or adapt it to a different use must be capitalized and depreciated over the applicable period prescribed by the Internal Revenue Code.
In PLRNNN-NN-NNNN the IRS determined that the cost of mold removal did none of these things; it merely kept the building serviceable - so the IRS permitted the cost to be deducted in the year incurred by the taxpayer. The ruling did state that it was presumed that none of the mold had been present at the time the taxpayer purchased the property - assuming otherwise - the mold remediation may have been treated as a part of the purchase cost.
Please be aware that