Repair or Improvement? How the IRS Decides, With Landlord Examples

Repairs are deducted the year you pay; improvements are depreciated. The IRS test, fifteen landlord examples, and the three safe harbors that help.

By Seayora Editorial Team · Published October 23, 2026 · Facts checked October 23, 2026 · 4 min read

What makes work an improvement?

Under the IRS’s tangible property regulations, you must capitalize an amount that improves a unit of property. An improvement is one of three things:

• A betterment: it fixes a defect that existed when you bought the property, expands or enlarges it, or materially increases its capacity, efficiency or quality.
• A restoration: it replaces a major component or a substantial structural part, rebuilds property that fell into disrepair to like-new condition, or repairs damage after a casualty loss you deducted.
• An adaptation: it adapts the property to a new or different use, such as turning a storefront into an apartment.

For a building, the test is applied to the building structure and to each major system separately: heating and air conditioning, plumbing, electrical, elevators, escalators, fire protection, security, gas distribution and other structural components. Replacing a whole roof is measured against the structure; replacing a boiler against the heating system.

Fifteen landlord examples

Which safe harbors can a small landlord use?

The de minimis safe harbor

You can elect to deduct items costing up to $2,500 per invoice or per item ($5,000 if you have an audited financial statement), as long as you have an accounting procedure to expense such amounts. The election is made each year with a statement attached to a timely filed return.

The routine maintenance safe harbor

Recurring work you expect to do more than once in the ten years after a building is placed in service, such as inspecting, cleaning, testing and replacing worn parts to keep a system working, can be deducted even when it would otherwise look like a restoration. It never covers a betterment.

The small taxpayer safe harbor

If your average annual gross receipts are $10 million or less and a building’s unadjusted basis is $1 million or less, you can elect to deduct all repairs, maintenance and improvements on that building for the year, as long as the total does not exceed the lesser of $10,000 or 2% of the building’s unadjusted basis. It is also an annual election.

How should you keep the records?

• Keep the invoice for every job, with a description of what was done and to which building system.
• Record capital improvements separately from repairs, by property, with the date each was placed in service.
• Decide each year whether to make the de minimis and small taxpayer elections, and tell your preparer which you made.

In Seayora each expense is assigned to a property and a category, and categories map to Schedule E lines, with repairs on line 14, so your preparer can see what was deducted and what still needs a depreciation decision in the Tax Center. See also Schedule E line by line.

Frequently asked questions

Can I deduct a $2,000 appliance in the year I buy it?

Usually, if you make the de minimis safe harbor election for the year and have an accounting procedure to expense items of that size. Without the election it is 5-year property, which may qualify for bonus depreciation instead.

Is painting a repair or an improvement?

Painting between tenants is a repair. Painting done as part of a larger remodel that is itself an improvement is capitalized with the remodel.

Sources

1. Tangible Property Final Regulations, IRS
2. Publication 527, Residential Rental Property, IRS
3. Publication 946, How To Depreciate Property, IRS

How Seayora helps

The Tax Center for landlords: Every expense by property and Schedule E line, with the ones that need a decision listed.

This article is general information, not tax advice. Tax rules change and your situation is your own, so confirm the treatment with a CPA or enrolled agent before you file.

How we write and check these guides: editorial standards.

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