Repairs produce immediate deductions. Improvements must be depreciated over 27 1/2 years to 39 years. When you consider the time value of money, repairs often produce more than three times the deduction value of improvements.

The "rehabilitation doctrine" requires the taxpayer to capitalize a repair made as part of a general plan of rehabilitation, modernization, and improvement of the property, even when the repair is truly a repair. In other words, taxpayers must capitalize repairs made as part of a plan of improvement.

The court here noted the following exceptions to the general requirement that repairs made while improving the property are capital expenditures:

• When tenants occupy the rental property, the court allows the separatation of repairs and improvements on the basis that the property is suitable for use in the trade or business.
• The court allowed a brewery that made capital improvements to increase production to deduct the repairs it made to keep the plant operating.

• Resilver the roof of the barn
• Replace 5 of 125 tin roof sections
• Repound nails in the wood
• Caulk the nail holes in the roof
• Apply wood sealer
• Prep and paint the outside of the barn with red oil-based paint.

The court allowed Helen Schroeder to deduct the substantial repairs she made to the barn because:

• She currently used the barn in her business
• She spent less on improvements than she spent on repairs
• The repairs simply restored the barn to its previous condition without adding value or prolonging its life

Lesson 2: Make repairs while the property is in use for business purposes.