Deduction of Repairs?

[Michael Doll]

Hi everyone,

I'm looking to make repairs and upgrades in my current duplex. I currently live in the unit that I want to repair (aka paint cabinets and install new flooring). Am I able to deduct any or all of these expenses against my rental income I'm receiving from the other unit? 

[Ashish Acharya]

Michael, 

Two things:

Rapairs:

1) Repairs made on the personal side of duplex cannot be deducted. It is a personal expense, just like your food expense. 

2) Repairs made on the duplex are deductible against the rental income.

Improvements:

1) Improvements made on personal side are added to the basis of the property, but you cannot depreciate the personal side of the property. The increase of the basis will help you minimize the taxable gain when you eventually sell the house. 

2) Improvements made on the rented side will also be added to the basis, but you can depreciate the improvements  on the rental side and deduct depreciation against the rental income. But, you have to recapture the depreciation (pay taxes again on what was deducted ) at the end when you sell the house.  

So, good strategy is: 

A) For personal side, do not do repairs because the are personal. Always do improvements because they increase your basis thus reduce taxable gain in future. 

B) For rental side, do repairs because they are deductible right away and do not have to depreciate over few years as done for improvements. Repairs do not have to recapture when you sell the house too.