Repair or Improvement for Taxes

[Joseph Heimann]

Looking for advice on a specific tax situation.

In 2019 I had to repair some rot in the structure of one of my rentals. They ended up needing to remove and replace 2 of the larger windows. 

Finishing up my taxes now and looking for thoughts on how this should be set up. I was thinking of putting the cost of the windows as a depreciable asset and the rest of the bill on repair expenses. I have seen advice online where it has been argued for the whole bill to be repairs or the whole bill to be capitalized. 

Since I received the bill late in the year, the payment is also split between 2019 and 2020. From what (I think) I know about repair expenses is that it matters when you pay for it not when it is complete. So this would mean I deduct the amount I paid in 2019? 

Thanks in advance. 

[Eamonn McElroy]

@Joseph Heimann

First, see if you qualify for the Safe Harbor for Small Taxpayers.  If not, then read on...

The rot repair and window replacements were done to the structures subsystem of the building unit of property.  The total was more than $2,500.

Based on the face value of your posts, if you make a De Minimis Safe Harbor election for the tax year, all costs would be capitalized and it would generally be advantageous to take a partial asset disposition as well.

You *might* get to a better answer by forgoing the DMSH and instead applying the Betterment, Adaptation, and Restoration tests.  The BAR tests are complicated, and again, it's advisable to get professional help in this area.