Rental property damaged by leak floor needed replaced no insurance
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New Member

Rental property damaged by leak floor needed replaced no insurance

Refrigerator line burst in rental apartment.  Had to replace laminate flooring.  Self insured so had to pay to replace.  Is this an expense or would it be considered a capital improvement and need to be depreciated?  Where/how to report loss?
5 Replies
Level 15

Rental property damaged by leak floor needed replaced no insurance

Cost?
*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
New Member

Rental property damaged by leak floor needed replaced no insurance

With labor and materials $1900
Level 15

Rental property damaged by leak floor needed replaced no insurance

A repair restores the property to as-was condition, and is an expense.  An improvement extends the useful life of the property or adds value, and is a capital improvement that must be depreciated.  

"In Plainfield-Union Water Co. v. Commissioner, 39 T.C. 333, 338 (1962), nonacq. on other grounds (1964-2 C.B. 8), the court stated that if the expenditure merely restores the property to the state it was in before the situation prompting the expenditure arose and does not make the property more valuable, more useful, or longer-lived, then such an expenditure is usually considered a deductible repair. In contrast, a capital expenditure is generally considered to be a more permanent increment in the longevity, utility, or worth of the property."

It also depends on the amount you spend relative to the total value of the building component.  Depending on the circumstances, your damage could have been wholly a repair, or partly a repair and partly an improvement, depending on how much floor you replaced relative to the damage and how old the previous floor was.  You do not have to treat the work as an improvement just because the floor is now new, but for example if the damage was in one room and you changed all the rooms in the house so they would match, then much of the work would have to be listed as an improvement.

If you think based on the facts of your situation that this was partly an improvement, then you can allocate the cost between repair and improvement.

There is also an IRS procedure (de minimis rule) that allows you to treat capital purchases as expenses if the amount is less than $2500.  If you decide to split the cost between repair and improvement, the turbotax program should offer you the option of taking the de minimis election for the improvement part if you qualify.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Level 15

Rental property damaged by leak floor needed replaced no insurance

Note, I updated the answer after I first posted it.  If you were emailed the first answer, please check the web site to see the revised answer.
*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
New Member

Rental property damaged by leak floor needed replaced no insurance

Thanks, appreciate that.
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