This is for past due tax returns between 2020 and 2023.
Since 2020, we have replaced 95% of the windows in our house. When the project first began in July 2020, our intention was just to replace the 9 windows in our home office that were no longer working, mostly because of broken springs and fogging from broken seals causing moisture buildup. However, some of the office windows are in the front of the house, so to avoid creating an ugly mix of old and new windows having different grid patterns (and angry neighbors calling the HOA), we decided to include all of the non-office windows in the front to our order. We ordered 16 windows total, which is 46% of the windows in the house. We paid 50% of the cost up front and the balance wouldn’t be due until all the windows were installed and we signed off after a final inspection. In November 2020, the windows arrived and were installed, but 2 of them had broken in transit and needed to be reordered. Those replacements didn’t arrive until March 2021, and we paid the 50% balance due after they were installed.
I know that whole-house improvements need to be depreciated, but what about partial improvements that are necessary repairs? Should this improvement be handled entirely as an improvement that gets depreciated, or could I enter the cost as a repair expense, where the office windows are Home Office Only Repairs and the non-office windows are Entire Home Repairs? Considering the payments and installation crossed two tax years, how do I decide which tax year this should go in, or should I include them in whichever year I made the payment? There’s also an Energy Credit for new windows. Does it matter which tax year I enter those in?
To claim improvements as expenses, the rule says, “The cost of all repairs, maintenance, and improvements is less than or equal to the smaller of 2% of unadjusted basis or $10,000”. Does “all” mean the combined TOTAL of every big, small, fat, and tall project and repair made around the house that year, or is it just referring to the total cost of whatever repair, maintenance, or improvement project I’m wanting to expense? Also, does the unadjusted basis include the land value? If not, wouldn’t removing the cost of the land from the basis be considered an adjustment in itself, seeing as I purchased the land and home together?
Finally, in March 2021 when the window rep came to collect the balance for our first window order, we mentioned we would eventually like to replace the rest of the windows in the house. He told us that their costs were going up by 50% in April and we might consider ordering them soon if we were serious. He even showed us their new pricing sheet, so we knew he was being honest. After thinking it over a few days, we decided to order 17 more windows, along with a new front door assembly since our door was falling apart. Once again, we paid half the cost up front in March 2021, and by August, all but 2 of the windows had been installed. In June 2022, the front door assembly was finally installed after 15-months, however we’re still waiting on the last 2 windows to be installed and haven’t been billed for the balance on the second window order or the door.
What, if anything, can I do with this improvement, since it technically hasn’t been finished or completely paid for yet?
