Recovery period for re wiring and re piping of rental

[AZ-Tax]

Rental bot late last yr and after fix up, immediately became rentals. Re wiring and re piping sounds both like a repair and improvement at same time.

[erchess]

Why an improvement

To my mind wiring and plumbing are not improvements unless what is put in is significantly better in relation to current practices than the original was to then current practices at the time it was put in. For example perhaps the old plumbing was copper or even iron because that was standard at the time. (I'm not sure when copper replaced the iron which is still in place in part of my home.) Replacing the copper with PVC or even the latest kind of plastic that's better than PVC would to my mind not be an improvement. I am not swayed in this case by the fact that copper plumbing is still available if you have the money and are willing to tolerate its relatively worse vulnerability to freezing compared to plastic. Now since we are talking about plumbing, if a significant part of the total cost of the project was new or moved places where water is used (toilets, sinks, tubs, showers, outside faucets, ice makers, coffee makers if plumbed, etc) then to the extent of those costs you do clearly have an improvement.

On the other hand maybe someone knows I am wrong. It's happened before and it will happen again.

[ToledoEd]

Repair would be fixing something broken, rewiring or replumbing the whole house would be an improvement. In rereading AZ post, it looks like this was part of the fixup cost prior to rental, in which case the IRS would say that it is part of the capital cost of the rental prior to being ready for service, and should be included in the basis of the rental property.

[erchess]

But when are wiring and plumbing broken?

To my mind if they make the house unsuitable for a use I plan to make of it then they are broken and in need of repair despite the possible but unlikely fact that they work as well as they ever did. Also after so long a time it makes financial sense to redo both because there are so many small repairs that currently need or will need doing that it makes sense to redo.

[oceanlovin'ea]

I was at an NCPE seminar years ago that discussed something like this. I think they were talking about the roof.

They said it all depends on how the invoices or estimates were written up. In the case of the roof, if the invoice said it was to repair or replace damaged shingles, it could be considered a repair. But if the invoice said it was to REPLACE the roof, it would be an expense to be depreciated.

So with rental property, our clients need to be sure to watch how the people they hire write up the estimates and invoices.

Linda, EA

[erchess]

Linda's post

raises another example of the inconsistencies in tax law. A new roof gets depreciated because that's the law not because it makes sense. A repaired roof gets expensed because repairs do and not because it makes sense even though to me it does.

What I am really trying to say is that fifteen year old or older plumbing or wiring likely has so many small problems, none major by itself but cumulatively major, that it's cheaper to start over than to try to find and repair them all. I would also call anything except a new roof or the installation of something the place never had anything like before a repair if it was required by the law or the marketplace in order for me to make intended use of the property to generate taxable income. And yes getting the contractor to write the invoices favorably strikes me as a good idea too.

[Davc]

The key here is "after fix up". Anything done to make a newly purchased property available for rent is capital.

[AJsTax]

The actual premise you have to examine

raises another example of the inconsistencies in tax law. A new roof gets depreciated because that's the law not because it makes sense. A repaired roof gets expensed because repairs do and not because it makes sense even though to me it does.

What I am really trying to say is that fifteen year old or older plumbing or wiring likely has so many small problems, none major by itself but cumulatively major, that it's cheaper to start over than to try to find and repair them all. I would also call anything except a new roof or the installation of something the place never had anything like before a repair if it was required by the law or the marketplace in order for me to make intended use of the property to generate taxable income. And yes getting the contractor to write the invoices favorably strikes me as a good idea too.

is does the work done to the asset increases the value or extend the useful life of the asset? If it meets either one of those two qualifications then it is a depreciable expenditure. If it only repairs to working order then it is a repair.
Example..I even have trouble with this one sometimes,, you overhaul or replace the engine in a truck. repair?? nope, that is a depreciation item. It increases the useful life of the vehicle.
Roof on a building, what would happen if you did not replace the roof when worn out? The building would have a lot of damage and shorter life. Depreciation!
Does new wiring and plumbing increase the value of the building..yes, by a bunch.
Depreciation.
On many items how you depreciate does not matter much because of the large amount of special depreciation and 179 expensing allowed. but on real estate it will matter a bunch.

[Davc]

That premise only comes into play after it's placed in service.

[AJsTax]

True

That premise only comes into play after it's placed in service.

Before the asset is placed into service all the expenses are added to the basis for depreciation.