We had some issues at our rental property in 2017 that required repair, and I'm not certain if they fall under improvements or repairs.
First, the water heater failed and began leaking. I replaced it with an equivalent model, which I think was actually less expensive / lower range than the one that broke (not an upgrade). Total cost was about $1,000.
Second, a portion of an exterior wooden staircase rotted out to the point where the top half needed complete replacement. They were hazardous and no longer usable, and a "patch" repair was not feasible. The replacement section is identical in design, construction and material to the original. Total cost was about $2300.
From what I can tell, in both instances, these should be reported as repairs because I was returning the property to proper working order after damages occurred -- e.g. not adding or upgrading anything, just fixing things that broke.
Can someone confirm how I should report these expenses? Thank you.
How to treat your rental property expenses can be a little confusing sometimes. IRS publication 527 provides strict guideline about how rental property expenses are treated on your tax return. Please follow this link IRS Pub 527
In review of your questions, the new water heater and exterior staircase is considered capital improvement of the property and prolong its life and adapt it to new uses must be depreciated over a period of time rather than deducted as a current-year expense.
Attached is a screen print file from IRS Examples of Improvement for your review.