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Depreciation & Recapture

Question: We have incurred substantial repairs to our residential rental property: new roof shingles, gutters, windows, furnace, and outside paint. What are the IRS rules concerning depreciation?

Answer:

Replacements of windows and furnace on a residential rental property:

  • Are capital improvements to the property because they are for betterments and/or restorations to the property.
  • Are in the same class of property as the residential rental property to which they are attached.
  • Are generally depreciated over a recovery period of 27.5 years using the straight line method of depreciation and a mid-month convention as residential rental property.

Repairs, such as repainting, replacing roof shingles, and replacing a rain gutter on a residential rental property:

  • Are generally currently deductible expenses.
  • Do not improve the property but keep your property in an ordinarily efficient operating condition.

Note: Repainting your property, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows, roof shingles, and rain gutters are examples of repairs. If you make repairs as part of an extensive remodeling or restoration of your property and these repairs directly benefit or contribute to the restoration of your property, then the whole job is a capital improvement. In this case, you should capitalize and depreciate the repair costs in the restoration or remodeling project as the same class of property that you have restored or remodeled as discussed above.

Additional Information:


Category: Sale or Trade of Business, Depreciation, Rentals
Subcategory: Depreciation & Recapture

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The OMB number for this study is 1545-1432.
If you have any comments regarding this study, please write to:
IRS, Tax Products Coordinating Committee
SE:W:CAR:MP:T:T:SP
1111 Constitution Avenue NW
Washington, DC 20224