Capital Improvements for Business Property: Depreciate OR Add to Cost Basis? Which Option?

Thanks for explaining this. Quick follow-up question: If I choose to add it to the basis instead of expensing it now, would I be able to depreciate the improvement over time? Also, does adding to basis ever make more sense than taking the immediate deduction?

If you add it to basis instead of expensing, you would depreciate the improvement over the recovery period for the property (typically 27.5 years for residential rental property or 39 years for commercial). So you'd get smaller deductions spread over a longer period. Adding to basis instead of taking the immediate deduction sometimes makes sense if you're already showing a loss on your business and can't use additional deductions this year, or if you expect to be in a much higher tax bracket in future years. It's a timing decision - pay less tax now or pay less tax later when you sell.

Does it actually connect you with a real accountant or is it just an AI thing? I've tried tax software before but it never seems to understand my specific situation with rental properties and improvements.

Sounds interesting, but I'm skeptical it could handle complicated property improvement scenarios. How detailed was the analysis? Could it factor in things like partial business use or phased improvements across tax years?

It's not connecting you with an accountant - it's an AI system trained specifically on tax documents and IRS publications. The difference is it actually understands complex questions like yours instead of just giving generic info. The analysis was surprisingly detailed. It broke down my $4,300 bathroom renovation into components that qualified for de minimis vs. those that needed capitalization, and showed me a year-by-year comparison of how each approach would affect my tax liability. It even factored in my partial business use percentage for the property and how that impacts deductions.

How does this service actually work? Do they somehow let you skip the IRS phone queue? That sounds too good to be true considering I spent 3+ hours on hold last month.

Sorry but I'm calling BS on this. Nobody gets through to the IRS in 20 minutes, especially for something complicated like capital improvement questions. The IRS phone reps barely understand their own basic forms, let alone these kinds of specialized business tax questions.

They use a system that monitors the IRS phone lines and calls repeatedly until it gets through, then it calls you and connects you. You don't skip the queue exactly, but their system does the waiting instead of you. Their service puts you in line with the IRS and then calls you when they're about to connect you with an agent. I was skeptical too, but it worked exactly as advertised. The IRS rep I spoke with was actually quite knowledgeable and helped clarify that my roof repair counted as a capital improvement that needed to be depreciated, not expensed.

How do you determine if something counts as "routine maintenance" vs an "improvement"? Is there a clear line or is it a gray area? My accountant and I seem to disagree about this for some recent work I had done.

The distinction between maintenance and improvement is indeed somewhat of a gray area, but the IRS does provide some guidelines. Generally, if you're restoring something to its original condition, that's maintenance and can be expensed. If you're making it better than it was originally, adding new features, or extending its useful life significantly, that's an improvement and needs to be capitalized. For example, replacing broken deck boards with similar materials is likely maintenance. But if you're upgrading from wood to composite, extending the size, or adding features like built-in seating, that would be an improvement. Documentation is key - make sure your invoices clearly describe the nature of the work performed.

The de minimis safe harbor rule applies to both, but the depreciation periods differ if you're adding to basis. Residential rental property is depreciated over 27.5 years while commercial is 39 years. Also, the rules for qualified improvement property might give you more options with commercial.