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Depreciation & Recapture

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

Answer:

Replacements of roof, rain gutters, 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.
  • Would be 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 since the property is residential rental property.

Repairs, such as repainting the 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 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 are incurred due to this restoration of your property, then the whole job is a capital improvement.  In that case, you should capitalize and depreciate the repair costs 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