The improvements will be added to the
basis of your rental, for depreciation and sales purposes. When you sell your rental, your adjusted cost basis
will be higher than cost so your gain will be less.
Capital improvements that add to the value of your rental
property, prolong its life, or adapt it to new uses must be depreciated over
a period of time rather than deducted as a current-year expense. This would
include things like:
- 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, duct work
- 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
In other words, if you spent $8,000 on a new roof last year, the
IRS won't let you deduct the entire $8,000 from last year's rental income.
Instead, the $8,000 must be depreciated, which means you deduct it over a
period of time instead of all at once.
To enter your rental improvements, simply follow the directions
to enter your rental income and expenses.
At some point you'll come across the Rental
Summary screen. Click Start next to Asset/Depreciation and
follow the onscreen instructions. We'll figure out which depreciation method
works best in your favor.
Note:
Although it doesn't seem logical,
refinance fees and mortgage points are also entered in the Assets/Depreciation section.
The IRS considers these amortizable
intangibles and accounting rules dictate that those are to be
depreciated instead of deducted as an expense.
Related information:
