Are painting and decorating rental property improvements?

[Carl]

No. They're maintenance expenses. The below definitions should help clarify things for you.

RENTAL POPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED

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.

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.

Cleaning & Maintenance

Those expenses incurred to maintain the rental property and it's assets in the useable condition the property and/or asset was designed and intended for.

Repair

Those expenses incurred to return the property or it's assets to the same useable condition they were in, prior to the event that caused the property or asset to be unusable.

Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.

However, when you do something like convert the garage into a 3rd bedroom for example, making a  2 bedroom house into a 3 bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.

[Vince590]

Thanks Carl, I'm getting back into realestate except condo's this time. My property tax bill says land value is $0 and when I finished entering the asset purchase info it said I had a depreciation of $0. That surprised me even though I don't necessarily want to depreciate the property. Makes me think I did something wrong. Secondly, these are totally furnished rentals, so I'm unclear about how and where to enter furnishings, linens, decorations, kitchen utensils, etc.

[Carl]

Ah I see. You're providing a furnished place. For your depreciation, it's apparent that something wasn't entered, or wasn't entered correctly in the program. But first, I'm confused on that property value of zero thing. If it's not a condo, what is it? The only thing I can think of that would not have a property value, would be condo or townhouse maybe. Once I understand that, I can provide info that will help "jog your memory" for the highly improbable zero depreciation on the property, as well as the furnishings.

[Vince590]

You should have been confused. I meant land value is $0. Anyway when I went back and checked through my entries, it now shows what my depreciated value should be. I added zeroes in the boxes, but?? anyway.

[Vince590]

I was in the process of buying this property before the end of 2013, therefore a $295 Unit Inspection, but it didn't close until after the new year. Any way to claim the inspection expense from actually paying it in 2013?

[Carl]

For  your first, I figured you did what I've done before, and entered the asset value first, which means it was entered in the land value box. For the expenses, I don't recall ever having seen anything on the IRS Pubs or in the TT program that you can only claim expenses incurred in the purchase of a property, in the tax year they're claimed. My understanding is that they're claimed in the tax year the transaction (closing) is completed. Home inspection fees are an allowed sales expense, if I recall correctly.

[Vince590]

What's your opinion on accounting for all the furnishings since I bought this place empty.

[Carl]

Just remember, this is only an opinion. Were it me providing a furnished place, I'd treat the small stuff (silverware, plates, linens, bath towels, etc) as supplies and claim it as a supply expense in the tax year I purchased it. These things tend to get broken/lost over time, or worn out through normal use rather quickly. If someone breaks a plate or rips a bed sheet, it's just plain stupid to have to deal with it as a depreciable asset. Also, some local taxing authorities (county or local township) considers the furnishings in a rental to be intangible assets, and assess a yearly intangibles property tax (sometimes referred to as a "use tax") on that stuff.
For the big furnishings, like tables, chairs, dressers, beds and the such, those are assets, as when it comes to value, a furnished rental definitely commands a higher rent than an unfurnished one. Also, I bet your "target renter" is short term, 2-4 year college students. They tend to tear things up. So while you can group items together, such as grouping everything in the bedroom as a "bedroom set", I'd list each item individually myself. Easier to deal with at tax time when that kitchen table was destroyed by all the partying new years eve.  Yeah, they'll be paying for it. But you still have to deal with it on the taxes.