Windows.. replace or not?

Question

Question regarding windows:

I just purchased my first property, 4 unit, built in 1930's. One side of the house, the window trim and sills are completely rotted away. The rest of the windows are in decent condition save maybe 2 sills. Originally I was thinking to replace all windows (43 in total) however this is a very high cost. I thought it would be a tax deduction, but my research shows that it is not. How do  you decide the cost value of improving the property or just making the needed repairs, such as just doing the trim on the bad windows vice replacement altogether?

Oren K. · Answer

Benjamin,

Regarding the tax write off;

Your accountant (or a decent book) should help you understand this. A very simple explanation is  that all costs / expenses end up as either current or adding to the capital account.

Current expenses are 100% / fully deducted in the year they are paid for which reduces the net income and so you pay less in taxes for the year.

Your capital account starts off with the purchase of the property and you deduct 1/27th of that amount as depreciation each year which as above reduces net income and less taxes are paid.

So if you do not expense the windows 100% in the current year, the amount you spend gets added to the capital account and deducted as depreciation  over time reducing the taxes that need to be paid.  There are exceptions to how quickly things can be deducted / depreciated (over 3 years, over 7 years, etc.).

Hope this helps,

Oren

Greg Scott · Answer

Benjamin:

Who pays for the heating bills?   If it is you, I would definitely lean towards new windows.

How will it look?  If you create a frankenstein property by only doing some windows, it could hurt your ability to rent.

What is your goal with this property?  If it is a short-term hold, having new windows will help you sell it later.  If it is longer term, you will probably want to plan for replacing them all eventually.

Tax deduction?   Effectively anything you do to improve the property results in a tax deduction of some sort.   Either you expense it as a repair or you capitalize it and write off the improvement over 27.5 years.  So, from that perspective, you do get a tax deduction.

Are utility credits available?  Often local utilities offer partial compensation for upgrading windows.  You may want to check that out.

Good luck

Shaun C. · Answer

You have many years of experience, more properties and tenants than I, but I still will fight you on this. If I can show the tenants that it will save them money in utilities, it is no problem to get them to understand that it is a cost the tenants will incur no matter what. The only difference is mine doesn't require burning of fossil fuels/wasting energy. Yours does. Tenants will only increasingly become more aware of their carbon footprints and this will become a growing issue.

Thomas S. · Answer

In a situation where the tenants pay heating and there is no financial benefit to the property owner, as with increasing rents to create pay back, your decisions are much more difficult. You do not spend money for the aesthetic benefit of tenants. It is important to maintain the property so your best plan would be to spread the cost over a extended period of time. I would replace windows as units turn over and increase the rents for new tenants to help cover the costs.

Shaun C. · Answer

I just put in 28 Anderson 100 series windows, some as large as 72 x 42 for about $8300 plus cost to install, so definitely check around. That was from Home Depot, we installed ourselves since we were doing siding too. Even at $150/window to install that would put your cost at around $13-15k. We had grilles in between the glass, and had the best glass put in to keep heat gain to a minimum, which also got us a $30/window credit from our energy provider, which further drove the cost down. This was for a flip, not a rental; but I would still recommend doing whatever is best for your tenants and the look of the house, it all comes back to you in rent anyway.

Benjamin Johnson · Answer

Greg,

Thanks for the quick response.

The tenants pay their own heating bills. The house actually looks good from the outside, the windows are the most unattractive part of the property, although not terribly ugly.

I agree with the Frankenstein statement, that's why originally i was going to replace all 43 at a price of around 18000.

As of right now, this would be a long term hold for me, which is another reason I am not sure replacing all windows at the time would be super beneficial, as if i hold for over 10 years, they will not really help resale at that point. However, short term, it would be a great touch for tenants, for aesthetics and their heating bill savings.

It is unclear to me how to write off improvements over the 27.5 years.

Again, I have just stepped into the real estate world, have 0 experience, and this is the first house that I have owned.

Windows.. replace or not?

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