At what point does a Repair become an Improvement?

[Chris T.]

After just going through my 2013 taxes and now looking ahead to 2014 I have a question about repair vs improvement in the eyes of the IRS. At what point does a repair become an improvement?

I know that if you repair a roof, that is a repair and can be deducted in a single year. If you replace the entire roof that is an improvement and must be depreciated. Is there any rule of thumb as to where that break is? If over half the roof is replaced in a "repair", does that still count as a repair? What about 25%, 75%? Is there a dollar amount for a repair that might start raising a red flag?

My specific situation is with the wood siding on one of my properties. It was neglected for many years and will be in need of major repair. There was a newer addition to the house that is Hardy board and does not need to be replaced. If an entire side of a house is replaced is that still considered a repair? What if it is the bottom 50%, 75% of the boards that need to be replace?

[Steven Hamilton II]

Originally posted by @Chris T.:

Thank you for your response @Steven Hamilton II . When filling out my Schedule E this past year there is only a small paragraph defining Line 14 (Repairs) and only references Publication 527 for further information on Depreciation. Is this $500 threshold discussed elsewhere or is that just a "safe" limit you use?

I am just starting to read the NOLO Landlord Tax Deduction Guide, but haven't reached that section yet. Just wondering if the IRS has a better description as well.

Thanks again

Chris,

Great question. The $500 number is based off the new regulations for taxpayers without a financial statement.

http://tax.cchgroup.com/downloads/files/pdfs/legislation/repair-capitalization-regulations.pdf