Home modifications an Expense or CapEx?

4 Replies

I had situation this year that I'm not sure per tax code if the costs would be deductible or require depreciating.

Accessibility modifications, which could be wheel chair ramps, door widening, shower modifications. Some changes may add value, others decrease value, and some negligible impact. I am interested in discussing all cases. So far I have found nothing on irs.gov or other websites to clarify how the costs would be treated if paid for by a landlord.

Thoughts? References?

Thanks!

I would call these modifications depreciable improvements.  In my opinion, these are elective modifications that increase the value of the property because the disabled tenant will usually pay a premium rent for a rental with these modifications. 

@Dave Toelkes Maybe you can realize increased rents, maybe not. At some point when they move out however, is the house more marketable / valuable? Is it really an "improvement" to property? Depends who you ask I suppose. Often people consider a ramp an eyesore instead of an improvement for example while the person in a wheelchair has an improvement. A Rollin shower is less valuable to a family with children (larger market I'd say) than the tub that was removed.

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@Joe Taylor ,

The IRS is not always so subjective.   Expenses are necessary and ordinary costs of doing business which include repairs and preventive maintenance.  I don't believe the IRS will accept an accessibility modification as either necessary or ordinary -- you can certainly operate your rental property without these modifications.  To still claim the modification cost as an expense, you need to repair something that is broken or perform preventive maintenance to keep something already in place in good working order.   In the IRS context, I don't see an accessibility modification as either a repair or preventive maintenance, but instead I see this as an optional upgrade to increase your rental client base.   This is why (by process of elimination) I consider your proposed modifications as improvements, which may subsequently increase the market rental value of your property.  

The tenant that needs these accessibility features will often stay "forever" and pay a higher than market rent, as well.  In my own experience, I had a Section 8 wheelchair tenant that stayed with me 13 years and paid a higher than market rent because my rental offered accessibility accommodations that were not generally available in the local area.  

@Dave Toelkes fair points. A couple examples where I still have doubts (1) installing a Rollin shower would mean tearing out a perfectly good tub/shower. I was reading an article mentioning "partial disposition" or something, maybe writing off the value of the good tub, which seems fair, but I haven't looked into that further yet. (2) some mods I think would have no or potentially negative impact to the general market value of the property, like a ramp taking up half a garage or one room I moved the door to the living room instead of hallway to get it to 36".