The Tax Benefit of Repairs

There are significant tax differences between repairs to real estate property and capital improvements:

Repairs are currently deductible in full and can be used to offset the tax from rental income. On the other hand, improvements must be written off over a period of years. It takes 27.5 years to write off improvements for residential rental real estate; 39 years for non-residential property. 

Repairs generally do not materially add to the value of the property or prolong its useful life. Instead, they merely keep the property in operating condition.

 Relevant Tax Court case: After a tenant complained about a leaky roof on a residential rental house in Long Beach, California, the landlord paid $8,000 to have the roof removed and resurfaced and deducted the cost. The IRS argued it was a capital improvement.

The Tax Court noted that the landlord's only purpose in having the work done was to prevent leakage and keep the rental property in operating condition "not to prolong the life of the property, increase its value or make it adaptable to another use." Therefore, the Tax Court determined that the cost was a currently deductible repair and not an improvement. (Campbell, TC Sum Op. 2002-117). 

Note that repairs may not be currently deductible if the work is included in an overall plan of improvement. It is advisable to separate repair work from capital improvements on invoices if a current deduction is desired.  

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