Investment property owners and landlords know that tax deductions are a crucial component of making sure they maximize their returns. In January of 2014 the IRS in the U.S. implemented a somewhat complex distinction as to what constitutes a repair versus improvement.
Why does it matter? Well, repairs can be deducted in a single year. So if you have a $1,000 qualifying repair, you can deduct it at one time. If it’s an improvement, however, the $1,000 worth of work may need to be depreciated over several years. (In some cases, more than 27 years!)
One useful test for understanding if a deduction can be taken in a single year is whether or not it falls outside of the “Betterment, Adaptation, or Restoration” assessment. If the work falls under these categories, they’ll need to be depreciated, not deducted in a lump sum.
There are some subtle considerations for each case. For a detailed look at what constitutes a betterment, adaptation, or restoration, take a look at this handy article:
Repairs vs. Improvements: Complicated New IRS Rules
Granted, this blog post shouldn’t be taken in lieu of the advice of a trained tax professional, but I hope you find it helpful as it pertains to your investments.
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