J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

9.3 Distinguishing Between a Repair and an Improvement

Maintenance and repair expenses are not treated in the same way as expenses for improvements and replacements. Only maintenance and incidental repair costs are deductible against rental income. Improvements that add to the value or prolong the life of the property or adapt it to new uses are capital improvements. Capital improvements may not be deducted currently but may be depreciated (42.13). If you make improvements to property before renting it out, add the cost of the improvements to your basis in the property.

A repair keeps your property in good operating condition. For example, repairs include painting, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows. However, putting a recreation room in an unfinished basement, paneling a den, putting up a fence, putting in new plumbing or wiring, and paving a driveway are all examples of depreciable capital improvements (42.13). Putting on a new roof is generally a depreciable capital improvement; however, the Tax Court has allowed current deductions for roof replacements intended to prevent leaks; see Example 2 below.

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Planning Reminder

Repairs and Improvements

What if repairs and improvements are unconnected and not part of an overall improvement program? Assume you repair the floors of one story and improve another story by ...