Managing the checkbook is one of the most difficult and taxing (pun intended) parts of being a rental property owner. Knowing the difference between Capital Expenditure and repairs and maintenance is essential to mastering your taxes as well as your bookkeeping for your Denver rental property.
Adding Capital Expenditures to Your Denver Rental Property
A Capital Expenditure, also known as CapEx, is something that you purchase or upgrade that increases the value of your rental property. A Capital Expenditure can thereby be considered an asset and can affect your taxes based on the depreciation rules of the Federal Tax Code. For example, each of the following demonstrates an expense that is considered Capital Expenditure:
- Replacing a dingy, old refrigerator with a new stainless steel one
- Repainting several rental properties in your portfolio
- Purchasing a new rental property
- Replacing torn, vinyl flooring with new hardwood
- Overhauling the electrical or plumbing within a rental property
Performing Repairs and Maintenance on Your Denver Rental Property
Money spent on repairs and maintenance is spent in order to restore or maintain the property, so it is not considered a new asset and cannot be capitalized. Instead, repairs and maintenance costs are simply considered expenses. The following list shows examples of repairs and maintenance costs
- Cleaning and repairing a dingy, old refrigerator
- Touching up existing paint
- Maintaining an old rental property
- Repairing torn, vinyl floor
- Fixing problem areas within old electrical or plumbing systems within a rental property
Capital Expenditure vs Repairs and Maintenance
Usually distinguishing between these two types of expenses is easy, but there are a few select circumstances that complicate their definitions. If money is spent to remedy a problem with the property, thereby increasing the value, the expense is considered a Capital Expenditure and not a repairs and maintenance cost, even though it describes reparation.
Still Confused? Let Keyrenter Handle It!
If you just don’t have the rental accounting touch, there is no reason you should struggle through tax season by yourself. Keyrenter Property Management Denver can take over for you and handle everything from setting rent and leasing services to maintenance coordination and rent collection. Let us handle all the things you hate about being a landlord so you can focus on all the things that you love. Contact Keyrenter Property Management Denver at 720-739-3000 to end your confusion.