How do I separate CapEx from repairs on a rental property?
A fixed leak and a replaced roof are not the same expense to the IRS — one is deducted this year, the other depreciated over decades. Here's the practical line.
This is one of the most common mix-ups I see in investor books, and it matters at tax time. The IRS draws a line between repairs, which keep a property in its normal working condition, and capital improvements, which make it better, bigger, or longer-lasting than it was. Repairs get deducted the year you pay for them. Capital improvements get capitalized and depreciated — for residential rental real estate, typically over 27.5 years.
What counts as a repair
- Patching a section of drywall or repainting a room
- Fixing a leaky faucet or unclogging a drain
- Replacing a broken window pane
- Servicing an existing HVAC unit
What counts as a capital improvement
- Replacing the entire roof, not patching part of it
- A kitchen or bathroom renovation
- Installing a new HVAC system rather than repairing the old one
- Adding a room, deck, or fence that wasn't there before
There's also a de minimis safe harbor election that lets you expense smaller items — generally under $2,500 per invoice or item — even if they'd technically qualify as capital in nature. Whether and how to use that election is worth confirming with your CPA, since it has to be applied consistently.
Tag it right the month it happens. Don't sort it out at tax time.
How I handle it in the books
Every property gets separate chart-of-accounts lines for "Repairs & Maintenance" and "Capital Improvements," and I tag each expense correctly the month it happens — not in a scramble every April. Capital improvements get logged to a running fixed-asset schedule per property so your CPA has a clean list to work from, not a shoebox of receipts. See how to track rental property P&L for the fuller picture of what monthly reporting looks like.
More questions
Find out where your books really stand
Free 30-minute call. Bring your last bank statement or don't — either way you'll leave knowing what's actually going on.
Book a call with Elbert