The sewer pipe replacement is not a "repair" by any stretch of the imagination. It's a property improvement since it clearly meets the IRS definition of a property improvement.
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Property Improvement.
Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.
To be classified as a property improvement, two criteria must be met:
1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.
2) The improvement must add "real" value to the property. In other words, when the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.
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I had some additional repair expenses
Any other work done that you may be thinking of classifying as a repair, is included in the cost of the property improvement if the work was done "because of" or "in relation to" the property improvement.
Therefore, your property improvement is entered in the Assets/Depreciation section of the SCH E and depreciated over 27.5 years.
Besides, since rental property almost always operates at a loss on paper every year at tax filing time, you'll find the safe harbor rules may not change your tax liability for that year by one single penny. Especially if the property has a mortgage on it.
Generally, when you add up the deductible mortgage interest, property taxes, property insurance and the depreciation you are required to take by law, it's common for those four deductions alone to exceed the total rental income received for the year. Add to that any of the other common expenses allowed and you're practically guaranteed to have no taxable income on the SCH E.
