New fence replacement on rental property is deductible or depreciation

[bdang009]

Hi,

I own a single family rental property.  Last year, a heavy storm blew out my fence and we had to replace with a new which costed $4200 in total (labor and material).  Can I deduct this expense in the same year or I have to do a depreciation? if depreciation, how many years do I need to use?

Thanks,

Jane

[Bsch4477]

It’s a capital improvement depreciated over 15 years. 

[bdang009]

Could you please explain why I can not classify it as a repair?  It was to replace an existing damage fence due to a storm.  It was not an improvement to add any additional value to the property so why it becomes capitalized? If it is classified as a repair, I can write off in the single year.  Thanks!

[Bsch4477]

These are the considerations for the difference between repair and capital improvement. Use your judgment to decide what fits in your situation. A capital improvement is a durable upgrade, adaptation, or enhancement of a property that increases its value, often involving a structural change or restoration.

A capital improvement restores the property to a "like new" condition

[Opus 17]

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@bdang009 wrote:

Could you please explain why I can not classify it as a repair?  It was to replace an existing damage fence due to a storm.  It was not an improvement to add any additional value to the property so why it becomes capitalized? If it is classified as a repair, I can write off in the single year.  Thanks!

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You are the person who determines if it is a repair or improvement.  Some of the key terms and definitions are that a repair restores the property to as-was condition, while an improvement (also called a betterment) either adds value to the property, or extends the useful life of the property, or adapts the property to a new use.  

As rough guidance only, I would suggest that if you replaced a section of the fence to match the existing fence, that is more like a repair.  If the fence was old and falling down, and you replaced the entire thing even though it was only partly damaged, that is more in line with an improvement.

You have to decide, and you have to be ready to justify your choice if audited.

In addition, there is a small business safe harbor that may allow you to deduct the cost as an expense even if it is classified as an improvement.  To qualify for the safe harbor, you must meet 3 conditions,

a. The adjusted cost basis of the property is less than $1 million.

b. The cost of the repair is less than $10,000, or less than 2% of the adjusted cost basis of the property, whichever is lower.

c. Your total gross receipts as a landlord are less than $10 million per year.

https://www.nolo.com/legal-encyclopedia/small-taxpayer-safe-harbor-for-repairs-improvements.html