Is siding to replace rot an improvement or repair

6 Replies

I've got a house with fiber board siding that is rotting on three sides of the house.  I'm going to put vinyl siding on the three sides of the house that are rotting and and leave the front of the house fiber board because it is in great shape and it cosmetically looks better than vinyl.  Can I deduct this as a repair or is this considered an improvement.  Thanks for your thoughts.

Thanks bill.  Suspected that. 

@Wesley C.

Can you time the repair towards year end? Perform half of the repair in 2015 and half in 2016? If you can do that, I'd be inclined to call it a repair in both 2015 and 2016 rather than a capital improvement under the new Final Tangible Property Regs.

Also, how much is the repair going to cost you, what is the total dollar value of all repairs completed for this property throughout the year, and what was the property's purchase price plus improvements?

@Brandon Hall undefined

Bought the house in 2014 for 85K and put about 5K in improvements in it.  In 2015 hardly done any repairs, less than 1K for sure.  Siding is going to cost less than 5K (closer to 4 probably)  Home value is around $125K if that matters.

@Wesley C.

So unadjusted basis is roughly $80kish (taking into consideration land value). To fall under the Safe Harbor for Small Taxpayers which allows you to currently deduct repair and capital expenditures in the current year, you cannot spend more than $1,600 (2% of the unadjusted basis) in repairs and improvements. 

For 2015, it looks like that will be tough to meet. But plan appropriately, and you can deduct some of the cost in 2016 rather than depreciate it for 27.5 years.

For instance, let's say the repair will cost $5,000. Complete it before year end and you will capitalize and depreciate that cost over 27.5 years (roughly $180 per year). Or, you can time your repairs (if possible) toward year end. Maybe you complete 80% of the work in 2015 and 20% in 2016. That means you spent $4,000 in 2015 and $1,000 in 2016. To fall under the safe harbor now, your unadjusted basis will be $84,000 ($80k + $4k of 2015 improvements) meaning your expense ceiling for repairs and improvements will be $1,680 (2% x $84,000). Spend $1k in 2016 to finish up the project, and stay under $680 for the year on repairs, and you're able to deduct $1,000 from this project in 2016 instead of capitalizing and depreciating that cost over 27.5 years. 

Hope that helps. Let me know if you need help deciphering that word vomit :)

*Edit - if you can't fall under the safe harbor, you should still try to time the repair toward year end to provide more flexibility in classifying it as a repair vs. improvement. If you repair one siding in 2015, under the Final Tangible Property Regs, you may have a basis for claiming the deducting currently as a repair rather than capitalizing and depreciating.

Very helpful stuff, Brandon. Had to read that twice. I'll definitely consider all this and weigh my options.  Thanks for your responses.