Yes, repairs
and improvements are recorded differently, based on cost and purpose.
Under the IRS rules, an Improvement
is an addition to or partial replacement of property that is a betterment to
the property, restores the property, or adapts it to a new or different use. Expenditures that improve the property (add to its potential market value) must be capitalized and depreciated. These costs add to the property basis.
A repair is any expenditure that is not an improvement, but instead returns the property to its former condition. Repair and maintenance expenses are fully deductible in the year that you paid the expense.
To complicate this further, the IRS added the Safe Harbor Election. This allows you to expense certain improvements that would otherwise be reported as assets for depreciation. Generally, you may deduct fully improvement costs up to $10,000 per year.
As you work through the Rental Property interview screens, look for blue links (like "Learn More"). This help links will define certain terms, provide lists of eligible costs, and guide you to make proper entries.
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