Unequal Partners Buying Capital Improvements vs Repairs

[Katherine Weaver]

Two people close to me have bought a property together and immediately ran into a snag about fixing up the place. They bought a double (up/down) for cash - no financing. Person A paid 80% and person B paid 20%. Person A is occupying the downstairs unit, and Person B is occupying the upstairs which has the finished attic, so it is a bit bigger. They estimate upstairs is about 60% of the property and the downstairs is 40%. At some point one or both partners will move out and rent the unit(s), but that could be anywhere from 3-10+ years.

They want to do a lot of work to the place - replace most of the windows, replace 3rd floor flooring, add insulation, some plumbing work, some electrical work, garage door from two manual doors to one automatic, paint entire interior, paint exterior, replace all the interior doors with solid 2 panel doors, landscaping, and maybe some other things. 

They both agreed Person B would pay 60% of the taxes, insurance, and utilities. The problem came whey they talk about the work they want to do to the place. Person A thinks Person B should pay 60% of most, if not all of this work because Person B occupies 60% of the property. 

Person A considers most of these things repairs, not capital improvements because the building department defines property improvements as additions of square footage, finishing an unfinished space, adding a deck or garage where there was none, etc. They asked my advice and I contend that Person A should pay 80% of work defined by the IRS as capital improvements and Person B should pay 60% of what the IRS defines as repairs.

How do unequal partners normally split the costs for capital improvements vs repairs? Do they use the IRS definitions of Capital Improvements vs repair and pay for them differently? Does anyone have experience with a similar situation? Please propose some equitable arrangements. Many thanks.