Hi, Krlutek, let me address your follow-up question and give additional guidance.
First, let's discuss repair expense vs. capital additions, which require setting up as an asset and depreciating. A capital addition would be spending money that increase the value of the property, or will extend the life of the property. A repair typically keeps the structure in it's original condition. For example, patching a hole in the roof is a repair, as it restores the roof to it's original condition, but tearing off the entire old roof and replacing with a new roof typically increases the value of the property, so would be considered a capital addition.
The above distinction is important because your question relates to the timing of the expenditures - either during the time when you had tenants or during the time you did not have tenants.
With respect to repairs, the answer depends on if you did the repair before you decided to rent out the rooms (when the entire house would be considered personal use), after you decided to rent out the rooms but before they were actually ready to rent out (when the costs could be considered start-up costs), or after you had the rooms ready and available for rent (when they are considered deductible rental property repair expenses).
If you made a repair prior to you deciding to rent out rooms, that would be a personal expense and would not be deductible on your tax return. If you decided to rent out rooms and you had some expenses to repair in the time frame BEFORE the rooms were available to rent but AFTER the time you decided to rent the rooms, those could be considered start-up costs. For start-up costs, you would accumulate those costs, then you would deduct them when the rooms became available for rent. Start-up costs are generally amortized over a period of time, but a special rule allows you to deduct up to $5,000 of start-up costs in the first year you are in business. Finally, if you had repairs AFTER the time that the rooms were available for rent, you would deduct those in the current year. Note the distinction here - the rooms don't have to be actually rented out, they have to be available to rent. So let's say you placed an ad looking for roommates in May, but did not actually rent the rooms until September, the date the rooms were available for rent would be May, which is the date you would use in this situation.
For capital additions, the date isn't as relevant, as capital improvements are set up as an asset and depreciated. When your property was first made available for rent, you would set up the asset based on the lower of your adjusted basis or the fair market value. Say you bought the house for $100,000, and you did capital improvements of $50,000 over all the years you owned it. When you decided to turn it into a rental, the house was worth $200,000. You would set the rental property up as an asset for $150,000 - your original purchase price, plus any capital additions you did to date. Any subsequent capital additions after it became a rental property would be another asset created, and set up as an asset in the year you did the project, to be depreciated over it's life.
Of course, as Alicia65 pointed out, as you are only renting out rooms, not the entire house, you would have to allocate the cost of any repairs/improvements you did to the overall house as business or personal based on an allocation method - such as total square footage of the rooms rented out versus total square footage of the entire house.
As for the items you specifically listed, my thoughts are as follows:
1. Luxury vinyl floors: Definitely a capital improvement, if done before the rooms were available for rent, add the cost to your total basis of the property. If done after the rooms were available for rent, set up as a separate asset and depreciate accordingly. If you replaced the carpeting in the rooms you are renting out, you would use 100% of the cost; but if the floors were replaced in common areas, you would pro-rate the costs related to the rental portion.
2. Furnace/heat pump/back-up furnace/ac: Definitely a capital improvement - treat same as item 1 above.
3. Spot repair of sewer pipe: Sounds like this was a repair, it restored the sewer pipe to it's original condition, so it would be an expense. Whether this is a personal expense, a start-up cost or a rental deduction would depend on the timing of when the repair was done, based on the explanation at the beginning of this response.
4. Installation of radon mitigation system: This sounds like an entire system was installed, assuming it improves the value of the property, so treat same as item 1 above.
5. Grounding outlets, lights, etc.: I would consider this a repair, as it restores the electrical to what it should have been originally. However, you could argue if this was an old house and NOTHING was grounded, then the work performed increased the value of the house and therefore would be a capital addition.
6. New siding on one side of house: if this was replacing just a piece or two of siding, it would be a repair. But if you replaced the entire side of the house because the old siding was old/rotten/etc, then I would treat that as a capital improvement (extends the life of the structure).
7. Security cameras: Treatment can go either way - if a full security system, then capital. If, however, you are talking about just setting up some relatively inexpensive cameras/Ring doorbell, then it could be considered just a current expense.
8. Removed dead grass, replaced with plants, upgraded sprinkler system: Removing the dead grass would be repairs (restores the lawn to original condition), but adding plants and then upgrading the sprinkler system sounds like capital improvements to me.
So, the answer to your questions really depend on you determining both the timing of the project as well as determining if the project is an ordinary repair or improves the value/extends the life of the property. I hope this gives you the guidance and clarity you are looking for!
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