Depreciation on repairs?

Question

I may understand this wrong, but under the new tax code capital improvements can be taken as a deduction rather than depreciated. Is That right? Specifically I had to do a new water heater and a $4000 foundation repair on a property. Can I just deduct those or do I have to depreciate them? Thanks for your help.

Basit Siddiqi · Answer

@Jeff GoffI agree with the colleaguesWater heater can likely be expense in current year since likely under $2,500 in costs.The foundation 'repair' likely needs to be capitalized. You should forward the invoice from the contractor to your accountant for him to determine.

Eamonn McElroy · Answer

@Jeff Goff

Generally speaking a foundation repair that extends the useful life of the building would have to be capitalized and depreciated over 27.5 years (assuming this is residential real estate).

Agree with my colleagues.  Always good to work with your CPA on expenditures so you can plan accordingly.

Ashish Acharya · Answer

Jeff,

I am sure the water heater is below 2500, so you can expense that under de miminis safe harbor.

The foundation repair depends on the size of your property and other factors. If it was just a minor repair, it can be expensed. But if it turns out to be a restoration of the property, it has to be capitalized and depreciated.

Either case you might also qualify for small taxpayer safe harbor. To be eligible for the safe harbor, the total amount of repairs, maintenance, and improvements for the property for the tax year may not exceed the lesser of $10,000 or 2% of the property's unadjusted basis. If the total amount paid exceeds the safe harbor threshold, the safe harbor does not apply to any amounts spent during the tax year.

Michael Plaks · Answer

You do understand it wrong, sorry. You can deduct the water heater but not foundation repair - that one still has to be depreciated, in most situations.