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Repair or Capital Improvement

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N

NoJustice

Guest
California
If a residential water well goes dry and the landlord has the well deepened to provide water for the tenant, is this considered a repair or a capital improvement when completing the Sch. E for Federal Taxes?

Thanks for your help.
 


L

loku

Guest
I would say the deepening a well that goes dry is a capital improvement.

The following definition of “improvements” comes from IRS Publication 17, Your Federal Income Tax:

Add the cost of improvements to your basis in the property if they increase the value of the property, lengthen its life, or adapt it to a different use. For example, improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, or paving your driveway.
 
J

J. Ducaine

Guest
i would treat it as repair since the depreciation on a well is going to be treated as an improvement, subject to 27.5 years under macrs. if the amount is immaterial relative to the income of the property, write if off now!
 
N

NoJustice

Guest
I feel this is a repair even though the cost of the repair is equal to 10 mos. of rent. If the well had not been deepened the tenant would have moved.

I've been reviewing the info in Publication 17 and it looks like this is one of those gray areas.

Thanks for your responses.

Nomads4fun
 

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