Rental Property Repairs vs Improvements: What Can You Deduct Immediately? — IRS Rules Made Clear (2025)
“I replaced the boiler — is that fully deductible?” “Does a bathroom remodel count as a repair?” If you own a rental property, you’ll quickly learn that expenses that look similar on the surface can receive completely different tax treatment.
Based on current IRS regulations and audit practice as of 2025, this guide explains how to properly distinguish between repairs and improvements,
and when an expense can be deducted right away versus depreciated over time — from an EA’s real-world tax perspective.
1️⃣ The IRS Standard for Repairs vs Improvements
The IRS does not decide based on how expensive the work was.
Instead, it looks at whether the expense simply restored the property to working condition or materially upgraded the property beyond its prior state.
- Betterment – Did it materially improve the property?
- Restoration – Did it replace a major component or system?
- Adaptation – Did it change the property’s intended use?
In simple terms:
Fixing what’s broken usually qualifies as a repair.
Upgrading the property’s level or capacity is usually an improvement.
2️⃣ Repairs That Are Immediately Deductible
A repair keeps the rental property in ordinary, efficient operating condition.
It does not extend the property’s useful life or increase its value in a meaningful way.
- Replacing a leaking section of plumbing
- Fixing or replacing door locks, outlets, or switches
- Touch-up painting or patching walls
- Replacing a few broken tiles
- Repairing parts of a boiler or HVAC unit
3️⃣ Improvements That Must Be Depreciated
Expenses that materially improve the structure, systems, or value of the property
are classified as improvements and cannot be deducted immediately.
For residential rental property, these costs are generally depreciated over 27.5 years.
4️⃣ Common Gray-Area Examples Explained
| Scenario | Classification | Tax Treatment |
|---|---|---|
| Replacing one toilet | Repair | Immediate deduction |
| Full bathroom renovation | Improvement | 27.5-year depreciation |
| Replacing an AC motor | Repair | Immediate deduction |
| Replacing the entire HVAC system | Improvement | 27.5-year depreciation |
| Partial flooring repair | Repair | Immediate deduction |
| Replacing all flooring | Improvement | 27.5-year depreciation |
5️⃣ When Safe Harbor Rules Allow Immediate Deduction
If you do not have audited financial statements, you may deduct
up to $2,500 per invoice or item immediately — even if the expense would otherwise be an improvement.
(The limit is $5,000 for taxpayers with audited financials.)
- Average annual gross receipts of $10 million or less
- Building unadjusted basis of $1 million or less
- Total annual repairs and improvements not exceeding
$10,000 or 2% of the building’s basis (whichever is less)
6️⃣ EA Audit-Ready Checklist
- Separate repair and improvement expense accounts
- Ensure invoices clearly describe the work performed
- Attach Safe Harbor Election Statements annually
- Retain before-and-after photos of the work
- Review state-level rules separately (CA and NY are stricter)
I elect the De Minimis Safe Harbor under Treasury Regulation §1.263(a)-1(f)
for the tax year ending December 31, 2025.
7️⃣ Top 3 Questions Taxpayers Ask on Google
• Is a large repair automatically an improvement?
No. Classification depends on the nature of the work, not the dollar amount.
• Are turnover renovations always improvements?
No. Maintenance-level work may still qualify as repairs.
• What if repairs and improvements are done together?
They must be separated and reported individually.
“For rental properties, the key question isn’t how much you spent — it’s what actually changed.”
This article is based on U.S. federal tax law as of December 2025.
State tax rules and individual facts may produce different results. Consult a qualified tax professional before making major property expenditures.
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