Make Ready Costs: Repair or Improvement?

Question

Just spent a decent amount of coin doing a make ready during a vacancy.  Come tax time, how do you generally categorize these expenses? Two biggest expenses were flooring (improvement) and interior painting (repair).  Then the usual little things like batteries for smoke detectors, bulbs, etc.

I just purchased the property in July, so I am curious if there's anything I can get back as far as the carpet that was ripped out, or is whatever condition it was in what I paid for in the purchase price and part of my 27.5 year depreciation?

I do my own taxes.

Brandon Hall · Answer

@Marco G. the answer here is going to be "it depends."

@Ryan Gillette is generally correct however it's not so black and white, especially with the new IRS tangible property regulations. Carpeting can be viewed as a repair under the right circumstance. The costs to tear out the old carpet will be rolled into the cost to install this new carpet, so you aren't losing that money.

Painting is a repair.

It would be wise to at least consult a CPA on these matters. Hope this helps!

Steve Vaughan · Answer

Agree with @Ryan Gillette although I consider interior painting, battery and bulb replacements to be maintenance. Supplies would be a line-item add and I try to avoid those.  I really try and fit things into the standard categories offered.

Periodic things to maintain something in working order I put under maintenance - which at tax time is lumped together with cleaning.

I'm not an accountant, just sharing what I do when I file my own taxes as well.  Hope this helps!

Ryan Gillette · Answer

If you rip out carpet and install new carpet, that extends useful life > improvement. If you repair a piece of overall carpet, it does not extend the useful life of the flooring > repair. Interior painting is a repair. Bulbs and little stuff like batteries I put under supplies, although perhaps it's an operational repair. Since it's written off the same way, doubt it matters.

On whether you get credit for "life remaining" on the carpet.. it depends. But likely no unless you have the receipt from when you installed it and it's less than the 5-10 year depreciable period over which you wrote it off. If it's under your original improvements over 27.5, I would say no.

Make Ready Costs: Repair or Improvement?

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