House hacking - improvements out of my pocket or rental income?

[Arthur Banks]

I'm currently "house hacking" a 2 unit. I was planning on staying only one year before moving on to the next to repeat.  But I may stay another year.  Anyway, the question is since this is my 'home', I want it to look nice, so there are some improvements I was considering.  But I don't quite know where the line is for improving on my dime or the rental income. For instance, I want to redo the blacktop driveway, add some landscape (shrubs and things that won't need a lot of care when I move), replace windows, paint floors/walls and finish some missing drywall in the basement. Things like that.  What have you done in this situation?

[Brandon Hall]

@Arthur Banks 

@Brie Schmidt I'd be careful telling him that he can currently deduct some of the expenses you mentioned. The new IRS final regs that were enacted January 1, 2014 really limit what you can claim as a currently deductible expense. 

For instance, a driveway and landscaping are now part of one Unit of Property (UOP) that is separate from the building and since it sounds like these expenses are improvements to the UOP, you would likely need to capitalize and depreciate the costs of the improvement (i.e. adding landscaping or conducting a major repair on the driveway). On the other hand, if you are paying someone to mow the lawn, that is a currently deductible operating expense. 

The same is true about windows and drywall. Windows and drywall are now part of the building UOP and replacing them will likely be classified as an improvement to the building UOP and subsequently the cost is capitalized and depreciated. This is true since he stated he has a 2-unit property; if he were renting a room in his primary residence and replaced a tenant window, then the cost could be currently deducted in full. 

I do not mean to come off as harsh, I am just trying to help people understand the new, and complicated rules. I wrote a blog post on the new IRS regulations that you may find of interest.