Rental Property Repairs Vs. Improvements
Bergen County Rental Property Repairs Vs.
Improvements For Commercial Real Estate
Brokers And Property Managers
Which Type Of Exterior Remodeling
Does Your Property Require?
If you are a commercial real estate broker or property manager in Bergen County, NJ, you may have faced the decision as to whether to repair your property or improve it. However, you may not fully understand the difference.
In fact, the difference is simple. Repairs bring the property back to its original condition, while improvements make it better than it was.
Perhaps a tree has fallen over and damaged your roof, masonry, and siding. In that case, masonry repair would be considered a repair by restoring the exterior to its previous condition. On the other hand, a room addition or a material upgrade to a higher-quality roofing material is considered an improvement.
This article helps you determine whether you, as a Bergen County, NJ commercial real estate broker or property manager, should seek to repair or improve your rental property. Both have their place. Which makes the most sense for your situation?
An Examination Of Bergen County, NJ
Rental Property Repair
In most cases, rental property repair is a perfectly adequate choice. It returns your commercial, retail, or multi-family residential property to its state before it suffered damage or wear and tear. It maintains the property in its original condition without adding to its value.
Common repairs include projects like replacing a leaky roof, fixing damaged siding, replacing a broken gutter, painting wood siding, and replacing a broken window with one of a similar type or quality. None of these boost the value of a property beyond what it would have been in good condition after experiencing normal market appreciation.
Rental property repair is usually less expensive than making improvements to the building. The IRS considers it a type of routine maintenance expense that corrects the effects of normal wear and tear. To determine if it is a ‘repair,’ compare the results to the condition of the building after the last time you corrected the effects of wear and tear.
If the condition of each is similar, it is considered a repair. As such, you, as the owner, commercial real estate broker, or property manager, can deduct the cost of the project as an expense on this year’s tax return.
A Closer Look At Bergen County, NJ
Rental Property Improvement
Rental property capital improvements, on the other hand, do more than simply restore a property to its original condition. Improvements provide something new, add value, improve functionality, or otherwise boost the property’s resale value. It may extend the useful life of the premises by improving some important aspects of construction.
Improvements usually require a much greater investment of time and money than repairs do. Moreover, they often take a lot longer to complete. However, they also have a much greater impact on the value of your rental property.
Common examples of capital improvements include adding gutters and downspouts to a house that did not have them; replacing original windows with high-quality, energy-efficient replacements; and replacing aluminum siding with brick-and-mortar masonry. These boost the property’s value and are thus considered improvements.
Under IRS rules, there are three types of capital improvements:
- Betterments: Physically enlarge the premises, or otherwise increase its capacity, productivity, or quality.
- Adaptations: Adapt the property to a new or different use.
- Restorations: Return a property to like-new condition after it has become decrepit or reached the end of its useful life. This includes replacing major components or substantial structural elements.
None of these types of expenses can be deducted from the current year’s taxable income. Rather, they must be depreciated over as many as 27.5 years.
Depreciation refers to the decrease in a real property’s monetary value over time due to wear and tear, regular use, or becoming outdated. The cost of improvements can thus be written off over a period of years, depending on the type of property and its expected useful lifespan.
