Have a Tax Question? Ask a Tax Expert
Yes, the labor paid to someone else as well as the materials can be deducted for repairs to the rental property. If you pay more than $600 in one year to an individual you will issue a Form 1099-MISC so it is a good idea to use Form W-9 to get their information when they first work for you.
See Box 7. Nonemployee Compensation for more details.
Appliances are a bit different since these are assets that have a useful life of more than one year and you will recover the cost over time by using depreciation of the assets as an expense. For more information and links see Tax Topics - Topic 414 Rental Income and Expenses
Please see the information at http://www.irs.gov/publications/p527/ch01.html#en_US_2010_publink1000219017 for the difference between repairs that can be deducted in full as an expense and improvements that have to use depreciation.
Please ask if you need clarification.
I am saying that you can currently deduct the amount for repairs but must capitalize and use depreciation for improvements.
There is not a bright line single factor test to use for determining how much is repair and how much is improvement.
From the link above for the difference between repairs that can be deducted in full as an expense and improvements that have to use depreciation:
"You can deduct the cost of repairs to your rental property, but you cannot deduct the cost of improvements. The cost of improvements is recovered by taking depreciation (see , Depreciation of Rental Property).
Repairs. A repair keeps your property in good operating condition. It does not materially add to the value of your property or substantially prolong its life. Repainting your property inside or out, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows are examples of repairs.
If you make repairs as part of an extensive remodeling or restoration of your property, the whole job is an improvement.
Improvements. An improvement adds to the value of property, prolongs its useful life, or adapts it to new uses. Table 1-1 shows examples of many improvements.
If you make an improvement to property, the cost of the improvement must be capitalized. The capitalized cost can generally be depreciated as if the improvement were separate property. "
Depending on the facts and circumstances, the entire 4K may be repairs or only the portion that restores it to working condition (and does not add to the value, such as an upgrade).
For example, if I had laminate floor and decided to put in oak floor, the repair portion would be the cost to replace the laminate and the improvement portion (the cost of the oak that was more than just replacing laminate) would be an improvement. Had I just replaced the worn laminate with new laminate it would reasonably be all deemed to be repair expense to be currently deducted in full.
Please understand that it is only a difference in timing and that you will, eventually, get to deduct the entire 4K cost whether classifying it as either a repair or an improvement.
OK. seems pretty clear that the 2k for carpet and carpet labor is definately a write off since it is replacing other carpet. Not sure on the laminate since it is replacing tile, but it is cheaper than replacing the tile with new tile, we looked into some tile and said forget it, laminate is cheaper. What is your opinion on the laminate portion? I won't hold you to it, but how would you do it? You've done a good job and I will accept the answer after the next response.
Thank you for your kind words.
A repair is when the replacement does not materially add to the value of the property or substantially extend it's useful life.
If the laminate was less expensive than the tile it does not seem possible that the replacement materially added to the value of the property or that it substantially extended it's useful life and so, to me, it does not seem possible for it to be an improvement. The only reasonable choice seems to be to deduct it all as a repair.
Thank you for understanding that this is a discussion of the general rules to be reported by you on your return as applied to all of your facts and circumstances.
Feel free to continue our discussion as long as you need to be satisfied.