Capex Review for Repair Deductions

Cost segregation is probably already on your radar.

For many residential rental property taxpayers, a cost segregation study can accelerate depreciation, and with 100% bonus depreciation available for qualifying property, it can create a significant upfront tax deduction. Depending on the property, a study may identify 10–30% or more of the purchase price as shorter-lived property eligible for accelerated depreciation. But there’s another strategy that I think real estate investors should be paying more attention to, especially owners of sizable portfolios.

🔧 Repairs & Maintenance

Cost segregation gets a lot of attention because it can create a large tax benefit when you acquire a property, especially with the OBBBA permanently establishing 100% bonus depreciation on short-life property as well as leasehold improvements (QIP for non-residential property). But what happens after you own it?

Rental properties require ongoing spending—unit turns, replacements, maintenance, common area renovations, and work to keep the property in the desired condition for current and future tenants.

Some of those costs may qualify as current-year repair deductions rather than being capitalized and depreciated over time. And unlike accelerated depreciation, properly deducted repairs generally aren’t subject to depreciation recapture when you eventually sell the property.

For owners with an established portfolio, a repairs & maintenance review can sometimes uncover more tax savings than a cost segregation study—particularly when there has been significant ongoing work that hasn't been closely analyzed from a tax perspective.  If you are a real estate owner and have substantial annual capex, you should be reviewing your fixed assets for repair deductions.

Cost segregation is a great strategy. But don't stop there. If you're looking at the tax side of your real estate investment, consider both.  And if you’re selling a property and recognizing a gain, this is a good year to review where you can reduce your taxable income on the other properties you own.

The biggest tax opportunities aren't always the ones everyone is talking about.