How Do You Treat Improvements?

Words you may need to know (see Glossary):

• Improvement

If you improve depreciable property, you must treat the improvement as separate depreciable property. For more information, see Additions and Improvements under Which Recovery Period Applies? in chapter 3.

Repairs. You generally deduct the cost of repairing business property in the same way as any other business expense. However, if a repair or replacement increases the value of your property, makes it more useful, or lengthens its life, you must treat it as an improvement and depreciate it.

Example. You repair a small section on one corner of the roof of a rental house. You deduct the cost of the repair as a rental expense. However, if you completely replace the roof, the new roof is an improvement because it increases the value and lengthens the life of the property. You must depreciate it.

Improvements to rented property. You can depreciate permanent improvements you make to business property you rent from someone else.

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