Being a property owner and landlord has its fair share of challenges, not the least of which is the responsibility to keep your property in good working order. You may also need to create additions, improvements, or restorations. This can depend on a number of factors, from the condition of the property when you purchased it to keeping up with tenant demand for specific amenities. Whatever the reason, we hope these landlord tips about the difference between property repairs and improvements in your taxes helps you in your decision making process.
First, how can you tell the difference between a property repair and an improvement? Here’s a simple distinction: a REPAIR is typically a one-time fix used to maintain the current property, such as replacing light bulbs, repairing damage incurred over the course of a year, or fixing a faulty water heater. An IMPROVEMENT is anything that adds to or increases the value of the property, such as renovations, landscaping, restored buildings, or newly installed air conditioning.
What’s the difference between the two when it comes to tax write-offs?
That’s the really important question. The difference is that repairs can be deducted from your current year’s tax liability, while only part of the cost of improvements can. There are stipulations, of course — namely that most eligible repairs are over $500, and that you must check with your tax specialist to ensure something you think is a repair is actually considered a repair. You might think replacing a damaged roof is a repair, but in reality it’s typically considered an improvement if it could have been patched instead. If the item is being upgraded or added, it’s safe to assume it’s an improvement.
So how do deductable improvements work? By factoring in the added value and depreciation over the course of several years, not just the year of installation or construction. Make sure you keep careful records, and contact your tax professional if you need additional guidance.
You may wonder why you should bother considering improvements at all. Repairs are an obvious necessity — you must maintain a habitable unit. However, if improvements are more expensive and not fully deductable, they may feel unnecessary. That’s your call as the property owner, but you may want to consider your area and the current market. What are tenants looking for? Will a certain investment result in better returns due to a different tenant pool or an upswing in applications? These are things to think about.
If you’ve found this post helpful and would like additional advice or tenant help, we also offer a number of screening packages for new and experienced landlords. Depending on your needs and number of rentable units, we may need to perform an on-site inspection to confirm a separate home office, locking file cabinet for properly storing applicants’ report information, and an acceptance of terms of 25-page agreement for service. These packages will offer you all the peace of mind you need, whether you opt for a mini or full credit check for your tenants. For more information, please contact us anytime!
Landlords Property Managers Contact TSCI