The best plain english information I can find today is at https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations. It's actually a link that is referenced from https://www.irs.gov/businesses/small-businesses-self-employed/tips-on-rental-real-estate-income-dedu...
Everything they talk about they refer to as a "betterment", and in all the examples used, it does one of two things.
- Adds real value to the property, or;
- Maintains a value that could potentially be lost.
So to keep it as simple as possible, a property improvement adds real value to the property.
As an example, cleaning carpets does not add value, or even maintain the value all that much really.If anything, it slows the loss in value. So it's a maintenance expense. When you clean a 3 year old carpet, it's still 3 years old. Whereas when you replace that 3 year old carpet with new carpet, you are adding value or at a minimum, regaining what was lost on the 3-year old carpet that's been in there for 3 years already. Now this is a really bad example. But it's best I can come up with.
I guess another would be wood floors. Lets say "real" pine wood floors that have been there for about 30 years. Waxing the floors maintains it. It doesn't add value or any "betterment". It's a maintenance expense. However, if you have those floors sanded, treated and resealed with something like polyurethane, that's definitely a betterment, and it definitely adds value. But weather you paid more or less than $2,500 for it, you could probably go either way. Either expense it (under safe harbor just be be safe) or depreciate it.
I found it interesting on the website (because I didn't know this before) that there are some things that can be safe harbored if over $2,500 and less than $5,000. Something to do with having an "Active Financial Statement". But from what I see that applies more to a SCH C or corporate business, than it would to a SCH E rental property. (That's not to say it could never apply to a SCH E property though. I just didn't read much beyond the AFS requirement on that specific item.)
Since the $25K thing seems to be getting under your skin, I've added it to the boilerplate.
BTW - have you ever heard of the "Oxy-Moronic Rule Set"?
