In general, a repair is something that you would do to maintain the rental property at a basic level and would be deducted as an expense on Schedule E.
If your upgrades before selling are capital improvements the cost of the improvements will be added to the basis of the rental property.
A capital improvement is something that actually adds to the value of the home or increases its usefulness. Some examples of capital improvements are:
- Remodels and room additions (including decks and porches)
- New or upgraded landscaping, irrigation, sprinkler system
- Hardscape such as pavement, block or retaining wall, patio
- Fencing
- Swimming pool, spa
- Storm windows, doors
- New roof
- Central vacuum or security system
- Upgraded wiring, plumbing, ductwork
- Central heating, AC, humidifier
- New furnace, water heater
- Filtration, soft-water, or septic system
- Built-in appliances
- New flooring or wall-to-wall carpeting
- Upgraded insulation
- Satellite dish
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