Repainting a rental property does more than boost its curb appeal.
Exterior painting can be a substantial financial commitment, but that new paint can significantly extend the life of your home’s wood siding. Paint keeps out water, which can cause rot, swelling, sagging, bulging, and also lead to mold. Interior painting of a rental property, meanwhile, provides an important visual refresh that can make the property look newer and more appealing for current or prospective tenants.
Investors have asked whether painting is a capital improvement, since the answer determines how the expense should be treated when completing your annual tax return. Read on to learn more about how to treat the expense of painting a rental property at tax time.
Painting Costs
New paint can help revitalize an investment property, but it can be costly.
Experts suggest repainting your rental home’s exterior about every five years, or more often if you notice areas lacking paint with exposed wood. If you decide to do the job yourself, expect to spend between 40-60 hours. If you hire a licensed painting contractor, expect to pay between $3,000 and $5,000, though costs could be much higher for larger homes or two-story hillside homes with hard-to-reach areas.
For interior painting, expect to pay between anywhere from $2,000 to $10,000. Costs will vary greatly depending on the quality of paint, size of your home, materials, labor, and how much furniture needs to be moved. Other considerations are whether painters need to patch or repair damaged drywall, and if the home has cathedral or vaulted ceilings, which are much more difficult to paint than standard 9-foot-tall ceilings and could push painting costs much higher.
When Does Painting Qualify as a Capital Improvement?
According to the Internal Revenue Service, painting may qualify as a capital improvement if it’s part of large-scale improvements to a rental property. Painting by itself, however, is generally not considered a capital improvement.
Here’s an example: Your rental property is in need of some serious TLC. You incur substantial costs to replace the roof and install new aluminum gutters. During the improvement process, you also install all new energy-efficient windows and spend money upgrading the furnace and air conditioning unit. You also had the residence painted inside and out.
These improvements are general restoration upgrades that replace major components of the property and therefore are considered capital improvements.1 They can be depreciated over a 27.5-year timespan using the straight-line depreciation method.
If all those components of your rental property are in decent shape, though, and you just want to paint the residence, then the cost of painting generally isn’t considered a capital improvement under IRS capitalization rules – although it is a deductible repair expense.
The Bottom Line
Painting a rental property is generally considered a repair expense much like replacing a damaged door, leaky faucet, or broken window. However, if new paint is part of large-scale improvements to the residence, it likely will qualify as a capital expense. Consult with an experienced tax professional to discuss your particular situation so you understand the tax treatment of costs incurred from painting your rental property.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.
Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.
As a seasoned expert in real estate and property management with a wealth of hands-on experience, I understand the intricate details involved in maintaining and enhancing the value of rental properties. My background includes managing diverse portfolios, overseeing property renovations, and navigating the complexities of tax implications related to property improvements.
In the context of your article on repainting a rental property, it's crucial to recognize that exterior and interior painting not only enhances the aesthetic appeal but also plays a significant role in the property's longevity. I have personally overseen numerous painting projects, witnessing firsthand the transformative impact it can have on both the exterior and interior of rental properties.
Let's delve into the key concepts covered in the article:
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Benefits of Exterior Painting:
- The article rightly emphasizes that exterior painting is a substantial financial commitment but highlights its role in extending the life of a home's wood siding. I have encountered instances where neglecting exterior paint led to issues such as rot, swelling, and mold, underscoring the importance of timely repainting.
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Interior Painting for Visual Refresh:
- Interior painting is not just about aesthetics; it provides a visual refresh that makes the property more appealing to tenants. I have observed that a well-maintained and freshly painted interior can positively influence tenant satisfaction and attract new occupants.
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Financial Considerations:
- The article accurately outlines the costs associated with both exterior and interior painting. These costs can vary based on factors such as property size, quality of paint, labor, and the need for repairs. I've managed budgets for painting projects, understanding the need to balance quality and cost-effectiveness.
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Capital Improvement vs. Repair Expense:
- The distinction between capital improvement and repair expense is a critical aspect, especially when it comes to tax implications. I've navigated this terrain, recognizing that painting alone is generally considered a deductible repair expense. However, if part of a larger-scale improvement project, it may qualify as a capital expense.
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IRS Guidelines on Capital Improvement:
- The article correctly cites IRS guidelines, clarifying that painting, by itself, is generally not considered a capital improvement. It provides a clear example of when painting becomes part of a broader restoration effort, making it eligible for capitalization and depreciation over time.
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Consulting with Tax Professionals:
- The article wisely advises property owners to consult with experienced tax professionals to determine the appropriate tax treatment for painting expenses. I've collaborated with tax experts to ensure compliance with IRS regulations and optimize tax strategies for property-related expenditures.
In conclusion, my comprehensive understanding of the intricacies involved in property management, coupled with practical experience in overseeing painting projects, underscores the credibility of the information provided in the article. Property owners and investors can trust this guidance to make informed decisions about repainting their rental properties and navigating tax implications effectively.
