The first step is determining if you have a repair or an improvement. If you have a repair, then you can deduct the cost, but if you have an improvement then you must use depreciation. Since more information is needed to decide which your expense qualifies as, consider the following:
- If the cost was to return the value of the property to the condition it was in when the original retaining wall was working properly, then you are maintaining the property and the expense is considered a repair. This means it's fully deductible under repairs & maintenance (you'll see this category under your rental expenses).
- If the cost improved the value of your property, then it's considered an improvement and you'll deduct the cost as depreciation expense over 15 years. You'll need to add the 'improvement' under the Assets/Depreciation section under your rental and select 'improvement' as the type. A few things to note:
- You'll automatically get the fastest depreciation available for an improvement by selecting this type of asset in TurboTax.
- You'll most likely qualify for bonus depreciation, called section 179, which means you'll be able to choose to deduct the full amount this year. The software will ask you about this, at the end of adding the asset to the software.
