Sec 179 and Painting Rental

[Max W]

Can Sec 179 be applied to painting of a residential rental?  I could not find anywhere that painting was specifically mentioned.  Isn't Painting considered as maintenance?

[Jack from Ohio]

Just now, Max W said:

Can Sec 179 be applied to painting of a residential rental?  I could not find anywhere that painting was specifically mentioned.  Isn't Painting considered as maintenance?

Maintenance.  Expense it.

[Yardley CPA]

I agree with Jack...sounds like an expense item.  With that said, I did find this online:

Quote

 

Not All Expenses Are the Same

However, if you paint your building or room as part of a larger renovation, which is considered a capital improvement to your property, then the painting can also be capitalized and depreciated over time.Dec 27, 2018

 

Assuming that fits your situation then you may be able to capitalize it and use 179 potentially.  

[Max W]

Since it is greater than $2500, it would be depreciated at 27.5 years?  That seems unreasonable since even good paint jobs, once the lead was removed, only last about 5 years, now.  

[jklcpa]

38 minutes ago, Max W said:

Since it is greater than $2500, it would be depreciated at 27.5 years?  That seems unreasonable since even good paint jobs, once the lead was removed, only last about 5 years, now.  

If capitalized, it's life is determined the same as whatever asset was painted.  27.5 yrs may not seem reasonable for how long it would last, but with the next repaint, any remaining adjusted basis in this paint job would be written off at that point because it's "replaced".

From this IRS page:

Quote

Repainting the exterior of your residential rental property:

• By itself, the cost of painting the exterior of a building is generally a currently deductible repair expense because merely painting isn't an improvement under the capitalization rules.
• However, if the painting directly benefits or is incurred as part of a larger project that's a capital improvement to the building structure, then the cost of the painting is considered part of the capital improvement and is subject to capitalization.
• In this case, the painting is incurred as part of the overall restoration of the building structure. Therefore, the repainting costs are part of the capital improvements and should be capitalized and depreciated as the same class of property that was restored, as discussed above.

Ed, are we talking about repainting the entire building, an addition or portion that was renovated that needed painting and so the rest was painted to match and not look bad where a case could be made that the entire job wasn't exactly related to the renovated part?  Was it an interior paint where cost could still be expensed because it is spread over multiple rooms?   In other words, is there any justification to say that its cost is spread and is still a repair?

[Abby Normal]

Section 179 can only be used if your rental activities qualify as a business for tax purposes. You can’t use it if your rental activity is an investment, not a business. Owning rental property qualifies as a business if you do it to earn a profit and work at it regularly, systematically, and continuously—either by yourself or with the help of a manager, agent, or others. Rental ownership, on the other hand, is an investment, not a business, if you do it to earn a profit but don’t work at it regularly, systematically, and continuously. There is no set number of rental units you must own to qualify as a business. The courts have held that ownership of a single rental unit can be a business.

https://www.nolo.com/legal-encyclopedia/section-179-expensing-rental-property-owners-deduct-long-term-asset.html

[Max W]

3 hours ago, jklcpa said:

If capitalized, it's life is determined the same as whatever asset was painted.  27.5 yrs may not seem reasonable for how long it would last, but with the next repaint, any remaining adjusted basis in this paint job would be written off at that point because it's "replaced".

From this IRS page:

Ed, are we talking about repainting the entire building, an addition or portion that was renovated that needed painting and so the rest was painted to match and not look bad where a case could be made that the entire job wasn't exactly related to the renovated part?  Was it an interior paint where cost could still be expensed because it is spread over multiple rooms?   In other words, is there any justification to say that its cost is spread and is still a repair?

Yes, repainting the entire exterior of the buildings.  There are 2 with 12 units each.  And it definitely falls under the category of a business.  Under the De Minimus rules only invoices of $2500 or less can be expensed. So, I conclude that the $18000 exterior paint job would dep'd over 27.5 years. 

[Lion EA]

As well as the $2,500, there's a % of cost rule.

No other renovations, just new paint? There's a rule about repairs/services/replacements you need to make every ten years or less.

Those repair regs have a lot of paths. You can probably find one that lets you deduct the painting cost.

[Max W]

5 minutes ago, Lion EA said:

As well as the $2,500, there's a % of cost rule.

No other renovations, just new paint? There's a rule about repairs/services/replacements you need to make every ten years or less.

Those repair regs have a lot of paths. You can probably find one that lets you deduct the painting cost.

Ah! The plot thickens. Exterior painting would fall into the 10 year category.  I think I ran into that before and I think it only applied to commercial bldgs.?   Wasn't the 10% cost rule under the Safe Harbor Small Business, where the expense was limited to 10% of the basis and property under $1M?  That went out with TCJA.

[Lion EA]

Yes, haven't really had to deal with Repair Regs issues since TCJA, but there are changes.

[Max W]

The Tax Book says the 2%, $1M is still in effect, yet I read somewhere that it eliminated with TCJA.

Here is the 10 yr Maintenance rule.

"Routine maintenance can be performed and deducted under the safe harbor any time during the property’s useful life, including after it has been fully depreciated. However, building maintenance qualifies for the routine maintenance safe harbor only if, when you placed the building or building system into service, you reasonably expected to perform such maintenance more than once every ten years."

https://www.nolo.com/legal-encyclopedia/routine-maintenance-safe-harbor-under-new-irs-repair-regulations.html

The fly in the ointments is "what comes under routine maintenance".  No mention of painting.