You cannot deduct the cost of improvements. You recover the cost of improvements by taking depreciation. This is a subject of much debate in the landlord community. According to accountant P.A. Smith of Indianapolis, you are advised to separate the costs of repairs and improvements and to keep accurate records. This may not seem important when you first acquire a property, however, you will need to know the cost of improvements when you sell or depreciate your property.
Accurate records begin much like the building of a house, with a sound foundation.
Here's how P.A. Smith distinguishes repairs from improvements. A repair keeps your property in good operation. It does not materially add to the value of the property or substantially prolong its life. Painting, fixing gutters, fixing leaks, and replacing broken window panes are examples of repairs. An improvement adds to the value of your property, prolongs its useful life or adapts the property to new uses.