Polyurea Garage Floor - expense or improvement

[David V.]

Quick question to the Tax pros out there.  I am considering resurficing my rental garage floor with Plyurea and was wondering if this can be expensed or is this an improvement that needs to be depreciated?  I suspect even if it is an improvement I could likely expense it under the Deminimis Safe Harbor if under 2.5K anyway?   With this said, I would never do this for a rental so this is a rental (tenant moved out) that I plan on selling using a 1031 exchange on soon and the garage floor has lots of cracks and stains so I want to make the floor look nicer.  Regards dave

[Jason Malabute]

If you’re resurfacing your rental property’s garage floor, the key question is whether this counts as a repair or an improvement. The IRS defines a repair as something that keeps your property in good working condition without significantly adding value or extending its life. These are typically deductible in the year they’re done.

On the other hand, improvements that better the property, restore it after substantial damage, or adapt it for a new use generally have to be capitalized and depreciated over time.

Now, if the cost is $2,500 or less, you might be able to use the De Minimis Safe Harbor election to expense it immediately, rather than depreciating it. Just make sure you have a consistent policy for expensing items under this threshold, as the IRS looks for that consistency.

In your case, if the Polyurea flooring is just making the garage look nicer and not really improving the structure or extending its life, you could argue it’s a repair. But if it’s more substantial, like protecting the floor and adding years to its lifespan, then it’s likely an improvement, which means you’d need to capitalize it unless you can use that safe harbor.

[Michael Plaks]

Quote from @David V.:

Quick question to the Tax pros out there.  I am considering resurficing my rental garage floor with Plyurea and was wondering if this can be expensed or is this an improvement that needs to be depreciated?  I suspect even if it is an improvement I could likely expense it under the Deminimis Safe Harbor if under 2.5K anyway?   With this said, I would never do this for a rental so this is a rental (tenant moved out) that I plan on selling using a 1031 exchange on soon and the garage floor has lots of cracks and stains so I want to make the floor look nicer.  Regards dave

Under $2,500 - yes, an immediate deduction is certainly available.

Over $2,500 - it depends. Generally it would be "capitalized", i.e. set up for slow depreciation which does not benefit you in a 1031 scenario. Depending on your specific situation, it is possible that we could find a justification for treating it as a repair.

[David V.]

Quote from @Michael Plaks:

Quote from @David V.:

Quick question to the Tax pros out there.  I am considering resurficing my rental garage floor with Plyurea and was wondering if this can be expensed or is this an improvement that needs to be depreciated?  I suspect even if it is an improvement I could likely expense it under the Deminimis Safe Harbor if under 2.5K anyway?   With this said, I would never do this for a rental so this is a rental (tenant moved out) that I plan on selling using a 1031 exchange on soon and the garage floor has lots of cracks and stains so I want to make the floor look nicer.  Regards dave

Under $2,500 - yes, an immediate deduction is certainly available.

Over $2,500 - it depends. Generally it would be "capitalized", i.e. set up for slow depreciation which does not benefit you in a 1031 scenario. Depending on your specific situation, it is possible that we could find a justification for treating it as a repair.

Thank you Michael and Jason for your comments.  You both confirmed what I was suspecting.  And Michael - Although I don't regularly post here but I remember you from years past replying to my accounting questions.  Darn - you are very committed to this forum.    I do have a follow up question on not benefiting from the "improvement" if I do a 1031 exchange.   

My question is - wouldn't I be able to add the amount of the improvement to my adjusted basis for the property to be sold?  Similarly, I am currently depreciating an HVAC system I installed several years ago so wouldn't the remaining undepreciated amount be added to my adjusted (carryover) basis (using either the general or simplified methods) after the exchange is completed?  

Regards

Dave

[David V.]

Quote from @Jason Malabute:

If you’re resurfacing your rental property’s garage floor, the key question is whether this counts as a repair or an improvement. The IRS defines a repair as something that keeps your property in good working condition without significantly adding value or extending its life. These are typically deductible in the year they’re done.

On the other hand, improvements that better the property, restore it after substantial damage, or adapt it for a new use generally have to be capitalized and depreciated over time.

Now, if the cost is $2,500 or less, you might be able to use the De Minimis Safe Harbor election to expense it immediately, rather than depreciating it. Just make sure you have a consistent policy for expensing items under this threshold, as the IRS looks for that consistency.

In your case, if the Polyurea flooring is just making the garage look nicer and not really improving the structure or extending its life, you could argue it’s a repair. But if it’s more substantial, like protecting the floor and adding years to its lifespan, then it’s likely an improvement, which means you’d need to capitalize it unless you can use that safe harbor.

Hi Jason, Thank you for confirming what I suspected.  I feel it's always best to collaborate with others on such issues and people like you and Mike make this forum a great resource.

[Michael Plaks]

Quote from @David V.:

My question is - wouldn't I be able to add the amount of the improvement to my adjusted basis for the property to be sold?  Similarly, I am currently depreciating an HVAC system I installed several years ago so wouldn't the remaining undepreciated amount be added to my adjusted (carryover) basis (using either the general or simplified methods) after the exchange is completed?  

Ha, thanks.
You're totally correct. I meant no current benefit.

[Account Closed]

Quote from @David V.:

Quick question to the Tax pros out there.  I am considering resurficing my rental garage floor with Plyurea and was wondering if this can be expensed or is this an improvement that needs to be depreciated?  I suspect even if it is an improvement I could likely expense it under the Deminimis Safe Harbor if under 2.5K anyway?   With this said, I would never do this for a rental so this is a rental (tenant moved out) that I plan on selling using a 1031 exchange on soon and the garage floor has lots of cracks and stains so I want to make the floor look nicer.  Regards dave

Under 2.5k should be fine. Resurfacing your rental garage floor with Polyurea would typically be considered a capital improvement, which means it would need to be depreciated over its useful life. The IRS generally requires improvements that add value, prolong the property's life, or adapt it for a different use to be capitalized and depreciated, not expensed.

However, as you mentioned, you might be able to expense the resurfacing under the De Minimis Safe Harbor election if the total cost is $2,500 or less per invoice/item. This safe harbor allows small-dollar expenses to be deducted immediately instead of capitalized.

[Ashish Acharya]

As you said, if the cost is under $2,500, you can likely expense it immediately under the De Minimis Safe Harbor.

Since you plan to sell the property and use a 1031 exchange, resurfacing the floor to improve its appearance before the sale makes sense. Just ensure the expense falls under the safe harbor limit if you aim to deduct it fully in the current year.