Can I deduct the cost ($14k) of replacing a broken retaining wall at my rental property or do I have to depreciate? What's the best timeline if I have to depreciate?

[clunea]

The original retaining wall used poor quality wooden railroad ties.  I replaced with concrete, which is what should have been used, as I understand it.  If I had not replaced, my duplex was in danger of sliding down a hill!

[AmandaR1 · Accepted solution]

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. 

[Hal_Al]

You replaced (not repaired) the retaining wall. So, it is an improvement and must be depreciated. The depreciation schedule for yard improvements is 15 years.

You may be able to write off the old wall* (disposition of a capital asset), based on some relatively new rules and write off the demolition portion of the new construction project. See references below for details. You may want to consider having your taxes professionally done to take advantage of these rules.

https://www.thebalance.com/partial-dispositions-3192873

http://evergreensmallbusiness.com/partial-dispositions-and-the-new-tangible-property-regulations/ (link included in above linked article)

https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations

 A complementary provision in the tangible property regulations gives a taxpayer who has made this election an option to also deduct the removal costs associated with the partial disposition instead of capitalizing the costs as unitary with the improvement (Regs. Sec. 1.263(a)-3(g)(2)). 

*If you have owned the property 15 years or more (the life of the wall), the write off is not available to you. Even if you owned it less than 15 years, the write off is based on how long you owned it (the longer you owned it, the smaller the write off)

[Hal_Al]

A footnote was added to my answer above