If you spend $100K on real estate property work, it’s tempting to think the whole thing is deductible this year. But that’s not how the IRS sees it.

If you patch a roof leak, repaint a unit, or replace a broken window, those are typically repairs. They keep the property in operating condition and can usually be deducted in the current year.

But if you replace the entire roof, install central HVAC where there was none, or upgrade all kitchen appliances across units, that’s considered an improvement. Improvements extend the life of the property or add value, so they need to be capitalized and depreciated over several years.

Here’s a quick breakdown:

- Repairs (deduct now): Fixing plumbing leaks, repainting walls, replacing a broken door lock, and resealing parking lots.

- Improvements (capitalize): New roof, structural foundation work, building additions, upgrading electrical to code, replacing all flooring.

This distinction matters. Classify it right, and you get the deduction you’re entitled to and stay in compliance.