Is foundation repair tax deductible for rental property - repairs vs improvements?

This is a common question with foundation work. The IRS distinguishes between repairs and improvements based on whether the work returns the property to its previous condition (repair) or adds value/extends useful life (improvement). Foundation repairs typically fall into the "improvement" category because they extend the useful life of the building and restore a significant component. This means you'd need to capitalize the cost and depreciate it over 27.5 years (residential rental property depreciation period) rather than deducting it all at once. However, if you can document that the work simply returns the property to its normal operating condition without adding value or extending useful life, you might be able to argue it's a repair. This is more likely if it's a smaller, isolated fix rather than a comprehensive foundation overhaul.

After struggling with a similar situation last year (had to replace a crumbling foundation on my duplex), I found this amazing tool that helped me figure out exactly how to classify and document everything properly. I used https://taxr.ai to upload all my contractor estimates, photos of the damage, and receipts, and it analyzed everything and gave me a clear breakdown of what portion could potentially be deducted as repairs versus what needed to be capitalized as improvements. It even created a detailed report showing the IRS regulations and case precedents that applied to my specific situation, which gave me confidence when filing. The tool flagged that certain portions of my foundation work (the parts addressing immediate water intrusion) might qualify as repairs, while the structural reinforcement was definitely an improvement requiring depreciation.

Just wanted to follow up about my experience with taxr.ai after trying it based on the recommendation here. I was really impressed with how it handled my complicated mixed-use property situation. I uploaded all my foundation repair invoices and it broke down exactly which portions would likely qualify as repairs vs. capital improvements. The detailed analysis showed that the waterproofing portion of my foundation work could be classified as a repair ($2,300 of my total bill), while the structural reinforcement parts needed to be capitalized. This saved me thousands in immediate tax deductions I wouldn't have known to take! The documentation it generated would definitely stand up in an audit too.

If you're trying to get more information directly from the IRS about your specific foundation repair situation, good luck getting through to them on the phone! I spent literally 6 hours on hold over 3 days trying to speak to someone about a similar rental property question. Finally found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c - they actually got me connected to an IRS agent in about 20 minutes! Was able to explain my specific foundation repair situation and got clear guidance on how to handle it. They basically have a system that navigates the IRS phone tree and waits on hold for you, then calls you when an actual human picks up.

I have to admit I was totally wrong about Claimyr. After posting my skeptical comment, I decided to try it anyway because I was desperate to resolve my rental property depreciation issue before filing my 2025 taxes. I was SHOCKED when I got a call back in 27 minutes with an actual IRS agent on the line. I explained my foundation repair versus improvement question, and the agent walked me through the specific regulations that applied. She confirmed that in my case, because the foundation work was addressing progressive deterioration rather than a sudden event, it needed to be capitalized as an improvement. The time I saved not being on hold for hours was worth every penny, and finally getting a definitive answer directly from the IRS was priceless for my peace of mind.

Don't forget to consider if you have a partial repair/partial improvement situation. In my experience with rental properties, foundation work often has elements of both. For example, replacing cracked portions might be a repair, while adding additional support or upgrading materials could be an improvement. Keep extremely detailed records from your contractor breaking down exactly what work was done. Ask them to itemize the invoice showing what portions were restoring existing function versus adding new capabilities or extending life.

Has anyone used the Safe Harbor for Small Taxpayers provision for this kind of expense? If your rental property has an unadjusted basis of $1 million or less, and your gross receipts are under $10 million, you might be able to deduct repairs and improvements up to the lesser of $10,000 or 2% of the unadjusted basis of the building annually.

For your $8,700 foundation repair in Phoenix, the key factor is whether this is restoring your property to its previous condition or actually improving it beyond what it was before the damage occurred. Since you mentioned the soil shifted after heavy rains and created new cracks, this sounds like you're dealing with sudden damage that needs to be repaired to restore normal function. This could potentially qualify as a deductible repair expense rather than a capital improvement that needs to be depreciated. Make sure to document everything thoroughly - take photos of the damage, get weather reports from that time period, and have your contractor provide a detailed invoice explaining exactly what work is being done to address the specific damage. The IRS will want to see that you're fixing a problem, not upgrading or improving the foundation beyond its original condition. Given the substantial cost though, I'd strongly recommend getting professional guidance from a tax professional or CPA who specializes in rental property taxes before making your final decision on how to classify this expense.