Replaced a cracked leaking bathtub in Rental Property for $6K - Repair or Improvement?

[liondoor360]

The unit was built in the early 1980s and the bathtub is original.  I bought the unit a few years ago and the bathtub was fine for a few years.  Last year it got a small crack and started leaking.  I tried to do an epoxy repair on it, which lasted a few month and then it started leaking again.  This year I went ahead and replaced it for about $6K.  How do I claim it?  Obviously I would want to calim it as a Repair if I can.

I asked Google Gemini, and it was convinced that I could claim it as a Repair, as I was fixing a broken fixture which is required to be functional (it is the landlord's responsibility in NC).

I asked Microsoft Copilot, and it was sure it was an Imprevement, depreciable over 27.5 years.

Which one is it?

[DianeW777 · Accepted solution]

A capital improvement that is attached to the structure is depreciated like the original house.  You do have an option for the Safe Harbor Election for Small Business (includes rentals).

Here are the rules you need to meet to take this election:

• Your gross receipts, including all your other income, are $10,000,000 or less.
• Your eligible building has an unadjusted basis of $1,000,000 or less.
• The cost of all repairs, maintenance and improvements is less than or equal to the smallest of these limits:
  • 2% of the unadjusted basis of your building or
  • $10,000

 If you find you do qualify for this option and you want to take the full expense in one year for the bathtub, use the steps below to enter it in your return. 

1. When you come to the screen, Did you buy any items that each cost $2,500 or less in 2023? mark the Yes button and click Continue.
2. On the screen Let's see if you qualify to deduct these items as expenses, mark both of the Yes buttons and click Continue.
3. On the Now, let's review each item you bought screen, mark whether all your new assets cost $2500 or less.
4. If you mark that every item cost $2,500 or less, you will be brought to the Rental Summary screen.  You have elected the De Minimis Safe Harbor provision.
5. If you mark that some cost above $2,500, you will be asked Did you make improvements to rental in 2023?
6. If you say Yes, you will be taken through the screens for the Improvements election.
7. If you say No, you will see the screen Do you have any items that aren't covered by your elections?  Proceed through the screens to enter these assets.
8. On the Rental Summary screen go to the Expenses section and click on the Start/Update box.
9. Continue to the Any Other Expenses? screen and enter the description and amount paid for the assets. Click Continue when finished.

[liondoor360]

Unfortunately the rental property was purchased for considerable less than 300K, so the expense is significanlty higher then 2% of the unadjusted cost basis.

So it looks like I will need to depreciate it as an improvement after all.

Thank you for the quick reply.

[Mike9241]

was the new one a substantial upgrade to the old one? Then it's definitely a capital expensiture. read no further.

the safe harbotr means that if you meet the tests, the iRS can not challenge the expensing of the item. just becuse an item does not meet the SH rules does not men it is not a repair

see this aruicle

https://www.thetaxadviser.com/issues/2021/oct/capitalized-improvements-vs-deductible-repairs.html 

read example 2 for roof repairs. The final decision on capitalizing or expensing must be yours. 

[liondoor360]

The replaced bathtub is just a new replacement for the old cracked one.  It is not a significant upgrade in looks or functionality, it is just functional compared to the replaced one that was now 40 years old.

It does not qualify for the SH as it does not meet the below 2% of unadjusted cost Basis; but can it be seen as a just a Repair then, as it is just a small part of the plumbing system UOP?