Repairs vs. Improvements: What Rental Owners Need to Know

A repair generally keeps property in ordinary operating condition. An improvement generally makes it better, restores it, or adapts it to a new use.

Repairs usually maintain existing condition

Fixing a leaking faucet, replacing a broken window pane, patching a small roof area, or servicing existing equipment may qualify as current repair expenses.

Improvements may need to be capitalized

Work that materially increases value, extends useful life, restores a major component, or changes a property's use may need to be added to basis and depreciated over time.

Look at the entire project

Replacing one cabinet door may be a repair. Renovating an entire kitchen is more likely an improvement. Dividing one renovation across several invoices does not necessarily change the larger project's treatment.

Keep the scope of work, invoices, contracts, and before-and-after details together.

Maintain property-level records

• Track income and expenses separately for each property.
• Save detailed descriptions of completed work.
• Maintain depreciation schedules every year.
• Discuss major projects with your advisor before work begins.