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Improvements versus Repairs for Crawl Space Flooding
Last year, we spent $15K fixing a flooding issue in our rental's crawl space. We hired Company A (an emergency flooding company) to pump out the one foot of water and remove all wet/moldy drywall at a cost of $5K. A couple weeks later, we hired Company B to install new sump pumps, drainage, etc at a cost of $10K. If we had stopped after Company A, I feel comfortable we would classify their costs as a Repair. If we had fixed the problem before the flooding (and only hired Company B), I would classify the costs as Improvements. However, does the IRS view these as the same "project" and therefore we must classify both Company A and B's costs as improvements?
I know this is a gray area and there will be lots of opinions. I feel like the safe answer is to classify both as improvements on our taxes and depreciate . . . but would you take the "risk" of having to defend against the IRS for classifying Company A costs ($5K) as repairs?