Owners of rental properties are allowed to take many unique deductions on their taxes. One type involves maintenance and repair expenses. If you’re a new landlord or have just had to do your first major repair, here’s what you need to know.
Are Repairs Tax Deductible?
The short answer is yes. If you are the landlord, you’re able to deduct the full cost of a repair performed on a rental property on your taxes. Deductions reduce your taxable income, so in essence, you can multiply the cost of the repair by your tax rate to determine how much you may save in taxes.
Repair vs. Improvement
Generally, repairs and maintenance are fully tax-deductible in the year they’re completed if they’re done in order to keep your property in good operating condition. They wouldn’t qualify if they are improvements meant to increase the value of the rental property.
The cost of improvements is recovered through depreciation which must be taken over the expected life of the property.
Repairs are typically done on a much smaller scale than improvements and upgrades. To qualify to deduct the repair, it must be a reasonable amount based on the nature of the repair. A few hundred dollars to repair a refrigerator or a few thousand dollars to repair a roof would be reasonable.
Examples of Repairs
Repairs restore an item to its original state or return it to a usable condition without increasing the value of the property. Examples of tax-deductible repairs include:
- Repairing a portion of the roof
- Repairing a hole in a wall
- Refinishing hardwood floor
- Replacing a cracked window
- Replacing cracked floor tile
- Repairing a leaking dishwasher
- Snaking a clogged sewer line
Examples of Improvements
Improvements are usually more extensive and costly than repairs. Examples of improvements include:
- Replacing an entire roof
- Replacing laminate flooring with hardwood flooring
- Upgrading black appliances to stainless steel appliances
- Adding a dishwasher to a kitchen that did not have one
- Adding central air conditioning
- Adding a deck
- Replacing the siding on the entire property
Tips for Deducting Repairs
- Make sure it meets the definition of maintenance or repair: To deduct in one tax year, it must be considered a repair and not an improvement. Repairs are necessary, useful and reasonable in cost. Repairs restore something to its previous condition; they do not add value.
- Keep detailed records: When claiming anything on your taxes, it is important to have proof in case you are ever audited, and repairs and maintenance are no different. Make sure to keep receipts of any materials purchased and invoices for any repairs done by someone you hired. Also keep any requests from tenants, since those are evidence that items needed to be fixed.
- Take pictures: Taking pictures provides visual proof of the repair and confirms that no upgrades were performed that wouldn’t qualify.
- Don't dismiss making improvements: While you may be able to deduct the entire cost of a repair on your taxes, performing an improvement at your property may allow you to collect a higher monthly rent from your tenant.