Westminster, MD · Member since 2015 · 20 posts · 1 vote
I'm a little confused about the terminology of what is a "Repair" vs. "Maintenance" vs. "Capital Expenditure". CapEx is the easiest to understand for me...big ticket items like roof, water heater, HVAC, new floors etc, but what exactly is a Repair or Maintenance is less clear to me. Are CapEx and Maintenance the same thing? I've heard many people only budget for Repairs and Maintenance and don't use the term CapEx at all.
Would any of the following items fall under Repair or Maintenance, or be separate expense item all together...?
- Cleaning (at tenant turnover)
- New Paint (at tenant turnover)
- New Carpet
- Pest Control
- Lead Paint tests (in Maryland, I think these are required at tenant turnover if the property is built before 1978, unless it is certified as being "lead free")
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
11y
I am not a tax professional, but I have a couple suggestions from years of self-reporting/ filing taxes on my rental property. Maintenance in general is recurring tasks to 'maintain' the property. Painting, pest control, gutter cleaning, lawn cutting, sprinkler winterizing, snow removal, etc. The IRS lumps maintenance and cleaning together. Cleaning to me is a separate line item, but combined at tax time with maintenance.
Repairs are unexpected and sometimes partial. Repairing part of a roof in a calendar year? Repair. Replacing the entire roof or flooring or siding? Cap Ex. Sometimes the size of the repair requiures it to be depreciated and therefore a CapEx item.
You will probably want to keep detailed records and have a tax pro file for you at the end of the year. Then you'll know what to do in the future @Michael E.
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
11y
I am not a tax professional, but I have a couple suggestions from years of self-reporting/ filing taxes on my rental property. Maintenance in general is recurring tasks to 'maintain' the property. Painting, pest control, gutter cleaning, lawn cutting, sprinkler winterizing, snow removal, etc. The IRS lumps maintenance and cleaning together. Cleaning to me is a separate line item, but combined at tax time with maintenance.
Repairs are unexpected and sometimes partial. Repairing part of a roof in a calendar year? Repair. Replacing the entire roof or flooring or siding? Cap Ex. Sometimes the size of the repair requiures it to be depreciated and therefore a CapEx item.
You will probably want to keep detailed records and have a tax pro file for you at the end of the year. Then you'll know what to do in the future @Michael E.
I am not a tax professional, but I have a couple suggestions from years of self-reporting/ filing taxes on my rental property. Maintenance in general is recurring tasks to 'maintain' the property. Painting, pest control, gutter cleaning, lawn cutting, sprinkler winterizing, snow removal, etc. The IRS lumps maintenance and cleaning together. Cleaning to me is a separate line item, but combined at tax time with maintenance.
Repairs are unexpected and sometimes partial. Repairing part of a roof in a calendar year? Repair. Replacing the entire roof or flooring or siding? Cap Ex. Sometimes the size of the repair requiures it to be depreciated and therefore a CapEx item.
You will probably want to keep detailed records and have a tax pro file for you at the end of the year. Then you'll know what to do in the future @Michael E.
Thanks Steve, I appreciate the input. My question was less of a tax related question though, and more about trying to understand the language for property analysis. I know specific numbers are always better, but if I use a rule of thumb of 5% for repairs and 7% for CapEx (or whatever, the exact percentages are not important for this discussion) I want to know what is being included in that lump sum figure. E.g. should I budget x% for repairs and y% for CapEx, PLUS also budget separately for paint, cleaning, carpet, and pest control? Or am I double counting?
I'm just trying to avoid the two extremes of a) buying a property that I think is cash flow positive and a great investment but it's really cash flow negative because I didn't adequately budget for all the little "gotchas" that add up, and b) never buying a property because I'm super conservative in all my numbers and I'm double counting things all over the place.
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
11y
Oh I see @Michael E.. For repairs and Cap Ex I use 5% of gross rents, each. Maintenance 10%. In general, depending on the condition of the property. If you see the roof only has 3 years left, for instance, obviously your reserves for Cap Ex would need to be higher!