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Suppose I purchase a real estate property in 2010. Suppose in 2011 I perform some capital expenditures that will need to be depreciated. Suppose further that I perform some more capital expenditures in 2015. What's the best way to account for the depreciation of the original home value, the capital expenditures in 2011, and the capital expenditures in 2015? Is it best to have separate accounts for each capital expenditure to remember how much of which capital expenditure has been depreciated?

Assume we are following US tax laws in the state of Texas for determining depreciation.

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You'll need to depreciate each individually.

From IRS Publication 946:

If you improve depreciable property, you must treat the improvement as separate depreciable property. Improvement means an addition to or partial replacement of property that is a betterment to the property, restores the property, or adapts it to a new or different use. See section 1.263(a)-3 of the regulations.

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    And I suppose the easiest way to do this with bookkeeping is to have a separate asset for each capital expenditure and its corresponding accumulated depreciation account? – Rich Apr 28 '17 at 19:57
  • @Rich Yeah that seems easiest to me. – Hart CO Apr 28 '17 at 20:10
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    Depending on the flexibility of your GL, you may use the same asset account (although one for expenditure and one for depreciation) and use a separate dimension to differentiate assets. – ApplePie Apr 29 '17 at 5:00
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Little more research behind Hart CO's answer

What's the best way to account for the depreciation of the original home value, the capital expenditures in 2011, and the capital expenditures in 2015?

The first question is to determine if it is a capital expenditure (not just any old home improvement).

According to 1.263(a)-3(d) of the Regs:

(1) Are for a betterment to the unit of property (see paragraph (j) of this section);

(2) Restore the unit of property (see paragraph (k) of this section); or

(3) Adapt the unit of property to a new or different use (see paragraph (l) of this section).

"Is what I'm doing a capital expenditure? Check here.


After determining "yes" to all three. We move to how:

We refer to this article: for more info:

Replacement[s]... in your residential rental property: Is generally depreciated over a recovery period of 27.5 years using the straight line method of depreciation and a mid-month convention as residential rental property.

Is it best to have separate accounts for each capital expenditure to remember how much of which capital expenditure has been depreciated?

Yes and as the answers above state, it would be straight line and over the course of 27.5 years.

{Don't forget that you can write off some of these capitalization costs under Section 168.}

As always, good luck.

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