Owning a vacation rental property requires regular maintenance, but not all expenses are the same. Some are necessary repairs to keep the property in good working order, while others are improvements that enhance its value and appeal. Understanding the difference is essential for budgeting, tax deductions, and keeping your rental competitive. Keep reading to learn more.
REPAIRS VS. IMPROVEMENTS: WHAT’S THE DIFFERENCE?
Repairs are necessary fixes to keep a rental property in good working condition without increasing its overall value. They are considered routine maintenance and are typically tax-deductible in the year they are made. Repairs restore or maintain a property’s condition but do not significantly enhance its value. Examples of Rental Repairs include:
- Fixing a leaky roof or plumbing issue.
- Replacing broken appliances with similar models.
- Patching drywall and repainting due to normal wear and tear.
- Repairing a damaged deck or walkway.
Improvements enhance the property’s value, extend its lifespan, or adapt it to a new use. They are considered capital expenses and are not immediately tax-deductible but can be depreciated over time.Improvements increase rental appeal and long-term value, often allowing owners to charge higher rental rates. Examples of Rental Property Improvements include:
- Remodeling a kitchen or bathroom.
- Adding a new deck, patio, or swimming pool.
- Upgrading to high-end appliances or installing smart home technology.
- Replacing an entire HVAC system instead of repairing a minor issue.
Repairs keep the rental functional and are immediate tax deductions, while improvements add value to the property and are depreciated over time. Balancing both ensures a well-maintained and competitive rental, and knowing the difference helps rental owners stay tax-compliant, budget wisely, and maximize their investment.
VACATION RENTAL REPAIRS VS. IMPROVEMENTS: WHAT YOU NEED TO KNOW
Repairs are fixes to existing issues that maintain your rental's current condition without significantly increasing its value. These are often immediate needs that keep the property safe and functional for guests such as: fixing leaky faucets or plumbing issues, patching drywall or repainting due to normal wear, repairing broken appliances or HVAC systems or replacing damaged flooring or worn-out furniture. Since repairs are considered necessary expenses, they are typically tax-deductible in the year they are completed. Regular maintenance also prevents costly emergencies that could disrupt bookings.
Improvements, on the other hand, enhance your rental’s value, appearance, or functionality beyond basic maintenance. These upgrades make your property more attractive to guests and can justify higher rental rates and include things like: installing new kitchen cabinets or high-end appliances, upgrading bathrooms with modern fixtures and tile, expanding outdoor spaces with a deck, hot tub, or fire pit, and adding smart home features like keyless entry or smart thermostats. Unlike repairs, improvements are not immediately tax-deductible but are depreciated over time. However, they boost guest satisfaction and increase long-term rental income potential.
To stay competitive, vacation rental owners should prioritize repairs to maintain guest satisfaction while strategically planning improvements to increase property value. Regular inspections, guest feedback, and seasonal maintenance can help determine what needs fixing vs. what upgrades will attract more bookings. By balancing both, you can keep your vacation rental profitable, appealing, and well-maintained, ensuring happy guests and a strong return on investment!
Success in the vacation rental property management world hinges on providing exceptional service, meticulously maintaining your property, and staying informed about market trends and regulations. Our sales and marketing team, property management staff, and support services teams are dedicated to maximizing your property's revenue while protecting your asset. Click here to learn more.
