First rental property - what improvements can i write off?

6 Replies

Hello BP,

I just bought my first investment property and am learning a lot of tips and tricks because of you all, so thank you very much!

What are the best improvements i can make to a rental property that i can write off? I spoke with multiple CPAs and they said different things (ex. One said i can write off new floors vs other said i couldn’t) and the only exception is it needed to be under $2500

What are your experiences with this? Here are some examples of what i am looking to do:

-replacing carpet with laminate floors

-installing mini split

-new paint on interior

-exterior accent paint & brick refinish (brick house)

Thank you all for your help!

-Daniel

Any and all improvements, repairs, property taxes, and insurance can be written off. I would not remodel or make an improvement unless it increases the rent or attracts a new renter. A tax deduction is only worth 25% or so of the cost. If you spend $1000 on an improvement, it only saves your tax rate on taxes, ie. 25% bracket. I'm not saying to be a slumlord, but I don't make a cosmetic improvement just for the sake of updating in order to get a write off. There are plenty of repairs and expenses to write off as it is.

Anything you do to the property before making it available for rent becomes part of the basis. After that, the IRS has pretty specific rules that differentiates the difference between improvements and repairs. Improvements get depreciated and repairs get written off. There's plenty of info in the IRS publications that clarify it. There are some "safe harbors" that may or may not apply to your situation.

One thing to keep in mind is that it isn't what a CPA says but more what the IRS says as they're the ones that will hold your feet to the fire if they think you bent/broke the rules.

Originally posted by @Anthony Dooley :

Any and all improvements, repairs, property taxes, and insurance can be written off. I would not remodel or make an improvement unless it increases the rent or attracts a new renter. A tax deduction is only worth 25% or so of the cost. If you spend $1000 on an improvement, it only saves your tax rate on taxes, ie. 25% bracket. I'm not saying to be a slumlord, but I don't make a cosmetic improvement just for the sake of updating in order to get a write off. There are plenty of repairs and expenses to write off as it is.

All improvements cannot be written off. Most of the improvements have to be capitalized and depreciated. 

Originally posted by @Daniel Barbosa :

Hello BP,

I just bought my first investment property and am learning a lot of tips and tricks because of you all, so thank you very much!

What are the best improvements i can make to a rental property that i can write off? I spoke with multiple CPAs and they said different things (ex. One said i can write off new floors vs other said i couldn’t) and the only exception is it needed to be under $2500

What are your experiences with this? Here are some examples of what i am looking to do:

-replacing carpet with laminate floors

-installing mini split

-new paint on interior

-exterior accent paint & brick refinish (brick house)

Thank you all for your help!

-Daniel

1) You need to know about repairs vs improvements and when they are made ( before renting or after renting) 

a) before making it rent ready: Both repairs and improvements have to be capitalized and depreciated. You cannot deduct the expenses. 

b) after renting: Repairs are always deductible. Improvements are capitalized and depreciated unless it meets safe harbors (there are two- not just 2500 one). Also, there are bonus depreciation and sec 179 expense elections that allow you to depreciate the entire amount in the year of purchase. Each purchase has to be analyzed to determine if they are qualified property.  

There are specific rules separates repairs vs improvements. You need to learn more about that if you are curious. 

@Daniel Barbosa

Some good feedback on the thread so far, I would do a little research on your own (this is part of it) and make sure you have experienced, ethical & professional advisors on your team and it’ll help you steer clear of the tax man... Even folks that do everything right can get audited..

That being said, it’s my experience that most expenses (except sweat labor) can be written off against the income however for larger expenditures my tax advisors have advised me to keep records of the “before” condition to help justify why the work was required (I.e. when I installed new flooring, kitchens etc) Incase it is ever questioned. Also, for long term buy and holds, you will likely move some of the bigger repairs/renovations, (windows, roofs etc) to the basis as opposed to taking the full expense in the year... I don’t know all the details, but after renovations last year I was able to add quite a bit to the basis which will help when it comes time to sell the property.