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Subject:  Repairs vs Capital improvements Date:  11/12/2002  3:14 PM
Author:  aegamemnon Number:  62011 of 127638

I've got to spend some considerable money to repair the roof on a rental house that I own and I need some conservative advice on how to treat the cost with respect to taxes. Here are the details.

-I bought the house in coastal NC in 1997 as a primary residence but bacame a landlord in 1999 thanks to a military transfer. The house has been rented since that time. I am depreciating it normally.

-The roof on the house had been replaced in 1995 or 1996 after hurricanes Bertha and Fran tore up that part of NC. As is not uncommon right after a hurricane, the previous owners were (I assume this to keep my own blood pressure down) victimized by an unscrupulous contractor who used only 3/8" plywood for the panels beneath the shingles. This was not even within code requirements which specify at least 1/2" CDX plywood. I just dicovered this over the past weekend when a contractor was doing what I thought to be minor repairs on one part of the roof.

-The cost to replace the roof is $7500. This is not an optional repair, it must be done or it will start to leak (thankfully it has not yet leaked although the roof appears wavy from the outside because of sagging of the panels between the beams). In this respect, the repair could be considered a repair. I am also going to have two skylights installed at an additional cost of $600 which will obviously be considered an improvement.

-The house is 25 years old and replacing the roof will undoubtedly increase the value and the serviceable life of the house house. In that respect, it could be considered an improvement.

I would prefer to take this expense off my taxes now as a repair. Would this raise any eyebrows if I were audited by the IRS? Also, I've never written off a loss of this size before, can anyone tell me the limits for an operating loss written off in a single tax year for rental property.

Thanks in advance for your well informed and circumspect responses.
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