Repair or improvement? How landlords decide what to deduct now

Updated 2026-11-08 · Lintel

A repair is deducted this year. An improvement is depreciated over 27.5 years. On a $9,000 job that is the difference between a $9,000 deduction now and about $327 a year. Here is how the rules sort it out, and the three safe harbors that make most small jobs easy.

The test: Betterment, Adaptation, Restoration

Under the IRS tangible property rules, you must capitalize (depreciate) a cost if it does one of these to the building or one of its major systems:

Betterment. It makes the property bigger, stronger or better than it was. Examples: an addition, or upgrading laminate counters to quartz throughout.
Adaptation. It converts the property to a new use, such as turning a garage into a rentable studio.
Restoration. It replaces a major component or returns a worn-out system to like-new condition. Examples: a new roof, or replacing the whole HVAC system.

If it does none of these and just keeps the property in its ordinary operating condition, it is a repair (Schedule E line 14) or maintenance (line 7).

Usually a repair	Usually an improvement
Patching a roof leak	Replacing the entire roof
Fixing a water heater thermostat	Replacing the whole HVAC system
Repainting between tenants	Adding a bathroom
Replacing a few broken tiles	Re-tiling the whole house with upgraded material
Unclogging and fixing a drain line	Re-piping the building

Safe harbor 1: de minimis ($2,500 per invoice or item)

If you don't have audited financial statements, you can elect to deduct items costing $2,500 or less per invoice or per item. This works even if the item would otherwise be capitalized, like a $900 refrigerator. You make the election each year with a statement attached to your timely filed return, and you must treat the items the same way in your books.

Safe harbor 2: routine maintenance

Recurring work you reasonably expect to do more than once in 10 years to keep a building in operating condition can be deducted. Inspecting, cleaning and replacing worn parts on a schedule all count, even when the work is substantial.

Safe harbor 3: small taxpayer (buildings ≤ $1 million)

If your average annual gross receipts are $10 million or less, and the building's unadjusted basis is $1,000,000 or less, you can elect to deduct all repairs, maintenance and improvements on that building for the year. The condition is that the total stays under the lesser of $10,000 or 2% of the building's unadjusted basis. Example: a $300,000 rental allows up to $6,000 a year. It is an annual, per-building election.

How to record it

Log the payment in your ledger as either Repairs or Capital improvement.
For an improvement, also add it to your depreciation list with its placed-in-service date and cost.
Keep the invoice. The description (“replace roof” vs. “repair 3 shingles”) is your best evidence.

Landlord Ledger has both paths built in. Repairs flow to line 14. Capital improvements stay off Schedule E and get their own 27.5-year schedule on the Depreciation tab, which then feeds line 18.

Get Landlord Ledger — $12

Sources: IRS Tangible Property Regulations (Treas. Reg. §1.263(a)-1 to -3) and the IRS “Tangible Property Final Regulations” FAQ; IRS Publication 527. General information, not tax advice. Elections and edge cases belong with your tax professional.