Rehab Costs - What to Expense versus Capitalize?

[Mark Bosworth]

So when you are doing a rehab, how do you handle categorization of expenses into capital accounts verses expense accounts?  Do you even try to keep track of the difference?  Any significant renovation to the house could be capitalized, then taken as depreciation because it increases the value of the property.  However, treating everything as an expense would reduce income and taxation right now.  Just wondering how everyone does it?  I can see an argument for both ways.  There is probably an accounting rule that tells us the proper way to do this.

- Treat everything as an expense.

- Treat everything as a capital addition to the property

- Categorize expenses into the two categories