How are improvements depreciated?

The short answer, and what it depends on

Publication 946 begins with a definition. An improvement is 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. If the work does any one of those things, you must treat it as a separate depreciable asset instead of deducting it right away. The publication cites section 1.263(a)-3 of the Treasury regulations for the definition, and that is where the detailed rules sit. Everything else on this page follows from the three-part test.

The reverse is also stated. You generally deduct the cost of repairing business property in the same way as any other business expense, which means it reduces your income in the year you pay for it. The practical question is therefore which side of the line a project falls on, because the tax result is very different: a repair is deducted at once, while an improvement is spread over years.

The roof example

The publication draws the line with a roof. If you repair a small section on one corner of the roof of a rental house, you deduct the cost as a rental expense. If you completely replace the roof, the new roof is an improvement because it is a restoration of the building, and you depreciate its cost. The size of the work and the extent to which it replaces the thing as a whole are what tip the result. The calculator above asks the three questions in the publication’s definition and tells you which side your answers land on, but it cannot decide a borderline project for you. Those cases turn on the regulations and the facts.

Recovery period and class: the same as the original

Once you have an improvement, the chapter on MACRS gives it its class. An addition or improvement is treated as separate depreciable property, and its property class and recovery period are the same as those that would apply to the original property if you had placed it in service at the same time you placed the improvement in service. The recovery period begins on the later of two dates: when you place the improvement in service, or when you place in service the property to which you made the improvement. The publication’s example is a rental home you have been renting since 1981. If you add a room and place it in service this year, the addition is depreciated under MACRS, in the residential rental property class, over 27.5 years under the General Depreciation System, because the home would be residential rental property if you had placed it in service this year. The old home’s 1981 placed-in-service date does not drag the addition into an older system.

The same separate-property rule applies when the underlying property was placed in service before 1987. An improvement made after 1986 to such property is depreciable as separate property under MACRS if it otherwise qualifies, even though the original asset is not.

Worked example

You replace the roof on a rental house. It costs $12,000 and is ready on September 20. Because a full replacement restores the building, it is an improvement. Treated as new residential rental property, it has a 27.5-year recovery period and uses the mid-month convention. A full year is $12,000 divided by 27.5, which is $436.36. September is the ninth month, so the roof has 12 minus 9 plus one-half, or 3.5 months in the first year. The first-year deduction is $436.36 times 3.5 over 12, or $127.27. If a repair to one corner had cost the same $12,000, it would have been an expense deducted in full. That contrast is why the classification is worth the care. The calculator reproduces these figures; the percentage tables in the publication remain the authority for a filed return.

Interior improvements to commercial buildings

Not every building improvement is stuck on a 27.5 or 39 year schedule. Publication 946 describes qualified improvement property as, generally, any improvement to an interior part of a building that is nonresidential real property, made by you and placed in service after 2017 and after the date the building was first placed in service by any person. It excludes improvements attributable to enlarging the building, an elevator or escalator, and the internal structural framework. The 15-year property class lists qualified improvement property placed in service after 2017. Because qualified property for the special depreciation allowance is tangible property depreciated under MACRS with a recovery period of 20 years or less, a 15-year improvement can be in that group, while an improvement depreciated over 27.5 or 39 years is not. The publication also lets you elect to treat qualified improvement property as section 179 property, and to do the same for roofs, heating, ventilation and air-conditioning property, fire protection and alarm systems and security systems added to nonresidential real property after it was first placed in service. Whether the special allowance applies depends on the date you acquired the property and the percentage in effect: for property acquired after January 19, 2025 and placed in service after that date, the 2025 edition describes a 100 percent allowance, with an election to take 40 percent instead for the first tax year ending after that date. For property acquired before January 20, 2025 and placed in service in 2025, it is 40 percent.

Improvements to property you rent

If you lease a building, you generally cannot depreciate the leased property itself because you do not hold the incidents of ownership, but the publication states that you can depreciate permanent improvements you make to business property you rent from someone else. The improvement is your asset even though the building is not.

What goes on your return

Form 4562 is required when you claim depreciation on property placed in service in the current year, so a new improvement brings a Form 4562 with it. Keep the invoices and the date the work was complete; that date is the placed-in-service date for the improvement. When you later sell, the depreciation you took is part of the story covered by the depreciation recapture calculator.

Limits of this page

This page follows Publication 946 and does not replace the repair regulations, which contain safe harbors and detailed examples. For the rules on when depreciation starts see when property is placed in service, and for a year-by-year schedule use the rental property depreciation calculator.

Sources

• IRS Publication 946, How To Depreciate Property (2025): Chapter 1, How Do You Treat Repairs and Improvements?; Chapter 4, Additions and Improvements. Page last reviewed or updated by the IRS April 30, 2026. Read November 2, 2026.

Edition read: Publication 946 (2025), for use in preparing 2025 returns. Limits and percentages quoted are for 2025 unless a page says otherwise. For tax years beginning in 2025 the publication gives a section 179 limit of $2,500,000, reduced dollar for dollar once qualifying purchases exceed $4,000,000, and $31,300 for heavy sport utility vehicles. Its What’s New for 2026 section gives $2,560,000, a $4,090,000 purchase threshold and $32,000. For qualified property acquired and placed in service after January 19, 2025 the special depreciation allowance is 100 percent, with an election for 40 percent in the first tax year ending after that date; for qualified property acquired before January 20, 2025 and placed in service in 2025 it is 40 percent. Check the current publication and form instructions for your tax year. This page summarizes the publication and does not replace it. Marked for human review.