How to expense costly repairs?

A house I recently bought needed foundation, porch and roof repairs, over $10,000 in 2007. A deadbeat holdover tenant and a lame “handyman” (I know! I know!) who flaked out on me caused me to only collect four months of rent for the year. Can I expense that much and show a big loss for this property, and if so, how much will carry over to 2008? Or is there a better solution, maybe involving capitalizing some of the expense into the basis?

I think this is one of those “pushing the envelope” issues. I am assuming that your property was in service as a rental when the repairs were done. Each element of the project could be individually expensed on your Schedule E as a rental repair cost, but when considered in the aggregate, an IRS auditor might deem them to be components of a larger renovation project.

Due to the size of the total “repair” cost, I am inclined to call your repairs a significant renovation project. As such, the cost would be capitalized and recovered through depreciation.

If you completed the repairs to make the property ready for rental use, then there is no question. The repairs are capital improvements and the cost is an adjustment to your basis.

You might try getting a copy of Al Aiello’s “Real Estate Tax Deduction Goldmine” (might not be exact name but it’s close). It provides strategies for expensing items that might otherwise be considered capital improvements. Supposedly, the strategies have been litigated in IRS tax court and won.


was it a foundation repair, or did you have the slab jacked?

was it a roof repair, or did you get a new roof?

was it a porch repair, or did you get a new porch?

repairs are repairs and sometimes they are expensive, but they don’t really add to the value or life of the dwelling.

new stuff adds to the life or value of the dwelling and should be capitalized.

I vote that the expenses should be capitalized.

Generally, when a repair fixes something back to working condition, it is considered a repair and can be expensed right away. So if someone drove a car through your garage and it costs you $15,000 to fix, that is considered a repair and can be deducted in full right away.

mcwagner is totally right for asking those questions “was it a foundation repair, or did you have the slab jacked? was it a roof repair, or did you get a new roof? was it a porch repair, or did you get a new porch?”

It sounds to me more like what you have is an improvement, so it should be capitalized.

In your example, I believe the relevant distinction between capital improvements and deductible repair is whether the costs were incurred

  • to put or restore the garage into ordinarily efficient operating condition, or,
  • to keep the garage in ordinarily efficient operating condition.

By my way of thinking, spending $15K to restore your garage to its former operating condition is a capital improvement.

In my myopic view of the world, the question is really moot for this example because the driver’s insurance company will pay to restore the garage. If the property owner does not incur any out of pocket cost, there is nothing to expense or capitalize.