Rental Expenses due to denied insurance claim

[JanisLS]

I have a rental property where we had a leak that resulted in black mold and damaged the kitchen floor and cabinets. 2 questions. 1-can I deduct the cost to clean up the mold and tear out the impacted flooring and cabinets. (the insurance company deemed the damage not covered by insuttamce, so I could not file a claim.)? 2- Can I capitalize the cost to replace the flooring and cabinets? Thank you.

[DavidD66 · Accepted solution]

Yes, you can deduct the costs to clean and remove the mold.  If the flooring and cabinets were not a significant upgrade to what you replaced, then those cost can be deducted as an expense.  If they were a significant upgrade (a betterment) that materially increased the productivity, efficiency, strength, quality, or output of the property) then the costs must be capitalized.  For example, if you replaced a sub-floor that was 1/4" plywood with 3/4' plywood, that would be a betterment that must be capitalized. Or if you replaced cheap particle board cabinets with custom hardwood cabinets, that would be a betterment that must be capitalized.