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The Difference Between Repairs vs Improvements

It may be possible for you to deduct certain expenses from your income tax when you own rental property. One of those deductions that may be possible in certain circumstances is any repairs or improvements that take place on the property. In order for you to take full advantage of this deduction, you need to determine if the property is depreciable. You also need to consider, in some cases, if the work that is being done qualifies as a repair or as an improvement.

Is the Property Depreciable?

There are several qualifications which need to be met in order to determine that your rental income property is depreciable. It needs to meet all of these requirements in order to be considered as such.

Capital Expenditures - The first requirement is that capital expenditures need to be associated with the property. Capital expenditures may vary from one property to another but can include the cost of acquiring the property or any improvements that are necessary to increase the value of the property. In addition, those improvements may qualify if they prolong the life of the property.

Use of Property - The only way that you would be able to claim depreciation on a property is if it were used properly. This would include using the property in a business or trade or if the property was held for the purpose of producing income. A personal residence, therefore, would not qualify but a rental property might.

Useful Life - In order for the asset to be considered, the useful life needs to be in excess of one year. Consideration needs to be given on any reasonable expectations for how long the trade or business would be able to utilize the property in question. If the property is in use for less than one year, it is typically going to be expensed during the year that it was acquired.

Some consideration also needs to be given to whether the improvement or replacement work that is being done is able to be either depreciated or expensed. In order for this benefit to be utilized on your taxes, several factors need to be considered.

1. Is the value of the property increased due to the work that is being done?

2. Is the useful life of the property prolonged because of the work being completed?

3. If the useful life of the property is not prolonged, is there a substantial future benefit that occurs due to the work being completed?

It can be difficult to determine if you are able to consider the repairs and improvements of your rental property on your income taxes. If you have any questions, you can contact the professionals at Tax Force Inc to discuss how you can utilize those expenses on your part to the greatest extent possible.

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