" I decided not to add the property as a rental asset, and not to deduct the plumbing expenses as an asset to be deprecated - instead, I will take the full sum of the plumbing expense against the total sale value to reduce my capital gains tax in the future when we sell."
No, that's wrong. The building and the new plumbing asset must be depreciated over 27.5 years.
If you are just staring to rent this house, you can simply add the $37K "improvement" to your house cost basis and depreciate the new total. Otherwise you depreciate the house as one "Residential Real Estate" asset and the Plumbing Upgrade as a separate asset
