capitalized according to section 263 & section 263A.
The characterization of any cost as a deductible repair or capital improvement depends on the context in which the cost is incurred.[1] Where expenditure is made as part of a general plan of rehabilitation, modernization, and improvement of the property, the expenditure must be capitalized, even though, standing alone, the item may be classified as one of repair or maintenance.[2]
Repair and maintenance expenses are incurred for the purpose of keeping the property in an ordinarily efficient operating condition over its probable useful life for the uses.[3] Capital expenditures, in contrast, are for replacements, alterations, improvements, or additions that appreciably prolong the life of the property, materially increase its value, or make it adaptable to a different use.[4]
You had changed the use from your own house to a rental house, so all the improvement costs pertaining to this project should be capitalized.
Disclaimer: Any tax advice included in this written communication was not intended or written to be used, and it cannot be used by the taxpayer, for the purpose of avoiding any penalties that may be imposed by any governmental taxing authority or agency.
[1] See Rev. Rul. 2001-4, 2001-1 C.B. 295.
[2] United States v. Wehrli, 400 F.2d 686, 689 (10th Cir. 1968)
[4] Id.
