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My client has 27 different rental properties. We record

rental income, property taxes, and...
my client has 27 different rental properties. We record rental income, property taxes, and insurance on each schedule E. We have a separate schedule E which lists management fees and all repairs to the properties since it would be too much to track each expense to each property since many things are bought at once to repair properties... at what point should certain repairs be capitalized and added to depreciation schedule? I guess I am asking for a dollar figure estimate or ruling.
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Answered in 9 minutes by:
3/27/2018
Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Tax
Satisfied Customers: 2,622
Experience: IRS Licensed Enrolled Agent, CDFA ® CFP ®, MBA
Verified

There isn't a dollar figure to determine whether or not a repair should be capitalized. The determining factor is if the work is a repair or an improvement.

Repairs are currently deductible and improvements are required to be capitalized.

___

Repairs vs improvements is covered in IRS publication 527

https://www.irs.gov/publications/p527

___

"Repairs and Improvements

Generally, an expense for repairing or maintaining your rental property may be deducted if you aren’t required to capitalize the expense."

___

Examples of Improvements

Additions
Bedroom
Bathroom
Deck
Garage
Porch
Patio

Plumbing
Septic system
Water heater
Soft water system
Filtration system

Interior Improvements
Built-in appliances
Kitchen modernization
Flooring
Wall-to-wall carpeting

Miscellaneous
Storm windows, doors
New roof
Central vacuum
Wiring upgrades
Satellite dish
Security system

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You must capitalize any expense you pay to improve your rental property.

An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use. In Table 1-1 there is a more complete list.

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Generally, minor repairs are expensed in the same year. Expenses such as a leaky faucet, one broken window, interior paint...

Please let me know your follow up questions. ---

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Customer reply replied 3 months ago
thanks for the explanation! What would be typical period used for deprecation on improvements? Like counter top? Or purchase of tile and grout? if you just repair a roof it is just a repair expense, correct? you wouldn't capitalize it unless it was replaced?

Tile and grout, I personally would expense as a repair if it was done in only one room.

Yes- if you repair a roof then you would deduct the repair cost in the same year. If you replace the roof, then you depreciate the cost.

---

Appliances, floors and counter tops you could depreciate as aggressively as 5 years

In Publication 527 there is Table 2-1. MACRS Recovery Periods for Property Used in Rental Activities

The table lists different items and the period of time you should use to depreciate items

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Customer reply replied 3 months ago
Is it possible for you to review this return for a fee or tip option they have above if I upload or is that not allowed? I see a few items I need to pull out of repair expenses and capitalize. 99% of everything is mainly repairs from my review and luckily my client keep immaculate records I will just need a few clarifications. You have taught me so much. I really appreciate it. Do you mainly do tax prep or financial planning? if you don't mind me asking. It is so nice to have someone explain things in a way that may be difficult to decipher form IRS publicaitons.

I don't mind helping out. I won't be able to look at the information until tomorrow but please let me know what you would like clarified.

I do a good amount of financial planning and a fair amount of tax resolution. I try to stay away from tax preparation except for my financial planning clients.

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If you want, send the follow up questions in a separate question and request me, then I will take a look tomorrow.

I am done for tonight.

Have a good evening.

Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Tax
Satisfied Customers: 2,622
Experience: IRS Licensed Enrolled Agent, CDFA ® CFP ®, MBA
Verified
Chad EA, CDFA®, CFP® and 87 other Tax Specialists are ready to help you
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Customer reply replied 3 months ago
Ok. Thanks. I will hit you back up when I get to a point that I may need a little more review. I am truly thankful for your help and patience. I am meeting with client tomorrow to discuss some of these issues and hope to get some answers. It is a family who all does the same things so between the trust and two individuals it totals to like 50 plus properties. You are AWESOME! Which you lived in Orlando.
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