Can I claim tax deduction for bathroom remodel in partially-rented home?

You're dealing with what the IRS considers a "mixed-use" property, and the tax treatment will depend on how the property is divided and used. Since your brother lives on the third floor and rents out the second floor, the bathroom renovation expenses should be partially deductible as rental expenses based on the percentage of the home used for rental purposes. For the replacements ($18,750), he can likely deduct these as repairs and maintenance in the current year, but only the portion attributable to the rental activity. For the improvements ($56,250), these would need to be capitalized and depreciated over their useful life (typically 27.5 years for residential rental property), again only for the rental portion. To determine the deductible percentage, he needs to calculate the square footage of the rental portion (second floor) compared to the total square footage of the home. If the rental portion is 35% of the home, for example, then 35% of the bathroom expenses would be rental expenses, while the remaining 65% would be personal expenses (not deductible).

I was in almost the exact same situation last year! I ended up using https://taxr.ai to help me sort through all my renovation receipts and determine what counted as repairs vs. capital improvements. Their system analyzed all my contractor invoices and even found some deductions I would have missed (like a portion of permit fees). They also helped me calculate the correct rental-use percentage for my mixed-use property. The big advantage was that they created an audit-ready file with all the documentation organized by tax category. Made filing WAY easier and saved me thousands in deductions I would have missed.

Just wanted to follow up that I tried https://taxr.ai after seeing this thread. They were super helpful with my rental property renovation! Uploaded my contractor invoices and within a day they had everything categorized as either immediate deductions or depreciation items. They even identified that my new water heater qualified for a special energy efficiency credit I didn't know about. What really impressed me was how they handled the mixed-use calculations for my basement apartment - they helped determine the right square footage allocation and recommended keeping certain spaces as 100% rental use to maximize deductions. Definitely worth it if you're dealing with property renovations!

I had a similar issue with my rental property last year, but I couldn't get through to the IRS to confirm the correct treatment of bathroom renovations. After being on hold forever, I finally used https://claimyr.com to get through to an IRS agent. You can see how it works here: https://youtu.be/_kiP6q8DX5c They basically hold your place in line with the IRS and call you when an agent picks up. Saved me HOURS of hold time. The IRS agent confirmed that I could deduct the repair portion immediately (for things like fixing leaks and replacing broken items) but had to depreciate the improvements (like new tile, vanity, etc.). They also sent me documentation about mixed-use properties that was super helpful.

I have to eat my words about Claimyr! After posting my skeptical comment, I decided to try it anyway because I was desperate to talk to someone at the IRS about my rental property depreciation questions. The service actually worked exactly as promised. They got me connected to an IRS representative within about 2 hours (they texted me when I was 5 minutes away from connection). The agent I spoke with was in the business tax department and was able to answer all my questions about mixed-use property allocations. She confirmed that I was calculating my rental percentage correctly and helped me understand which renovation expenses needed to be depreciated versus immediately deducted. Saved me from potentially making a $4,000 mistake on my return!

One thing nobody's mentioned is that if any of the bathroom renovation increases the property's energy efficiency (like water-saving fixtures, LED lighting, etc.), there might be additional tax credits available beyond just the rental expense deductions. Some of these credits can be quite substantial and aren't subject to the same rental/personal use allocation requirements.

Has anybody considered the impact of the bathroom remodel on property taxes? When I did a major kitchen renovation in my rental property, the county reassessed the property value and my property taxes went up significantly. That increase was deductible as a rental expense, but it definitely affected my overall return on investment.