Repair or Improvement for Your Real Estate Property?

You just spent money fixing up your property. Is it a real estate deduction you can take right now or is it something that you need capitalize and then depreciate over time?

My favorite answer: “It depends.”

The reason this is so confusing is because there is some confusing guidance by the time you sort through the IRS Code, Treasury Regulations and Tax Court rulings.

In general, if you improve a property or extend the life, then you have an improvement. That means the improvement costs are then capitalized as assets and you depreciate over 5 years, 7 years, 15 years or more. You don’t get an immediate real estate deduction.

If the expense was for work that fixes something that already exists, then you probably have a currently deductible expense.

An old example that we used to use said that if you fixed a hole in your roof, you have a repair and it’s a current real estate deduction. If you re-roofed the whole surface, then you extended the life of the roof and it was a capitalized expense. But we had a case a few years ago that changed how we handled all that.

In this particular case, a large commercial lessor needed to reroof the property. He spent tens of thousands doing it. In fact, it might have been over $100,000, as I recall without looking up the actual number. He took a current expense for the work. The IRS said no. He fought it in Tax Court and actually won! His winning argument was that he would have lost his current tenant if he didn’t get the leak fixed and there was no easy way to just patch a hole. The entire roof had to be redone and the air conditioning units had to be lifted off with a crane to do that. So there was a lot of expense involved.

And he won.

Got a question about whether a real estate expense is a current deduction or an asset? Talk to CPA or tax attorney today.

Thank you for choosing UsTaxAid Services, we would be glad to assist you with all of your tax needs and have you become our client. We can have a Client Representative get in contact with you or you can call Richard at 888-592-4769.

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