Author Topic: How to determine a repair vs improvement in water damaged rental property  (Read 290 times)

MrBojangles

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Radiator froze last winter when tenant was away.  Took out kitchen and most floors were warped.

How do I determine for tax purposes what is a repair and what is an improvement?  You cannot even get help from the IRS any more by telephone and the website isn't helpful.

Also, how do you treat the insurance money received for this? 

As you can see, I'm kind of lost here and this is fairly confusing.

Also, how is this treated when I try to sell the rental property?

Sibley

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Re: How to determine a repair vs improvement in water damaged rental property
« Reply #1 on: December 31, 2018, 07:28:59 PM »
My rule of thumb:
Improvement: extends the life or significantly betters/changes the use. IE, new roof.
Repair: fixing, maintenance, replacing like with like. IE, patch roof, painting.

I would personally classify the new kitchen and floor replacement as repair, so just expense it this year. If you changed the heating system, that would be improvement (radiator to forced air).

Insurance money - I would think it would be other income for the rental, but am very willing to be corrected if that's wrong.

When you sell - if you expense it this year, then no direct impact. If you capitalize (improvement), then it would get included in the basis, plus whatever depreciation.

MrBojangles

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Awesome and thank you!