Schedule E Tax Form Explained: How Landlords Report Rental Income and Losses

Every April, I hear the same panicked question from landlords in our VerticalRent community: "Where exactly do I report my rental income, and how do I make sure I'm not leaving money on the table?" If you've ever found yourself staring at a stack of IRS forms wondering which one applies to your rental properties, you're not alone. The Schedule E tax form landlords must file is arguably the most important document in your annual tax routine—yet it remains one of the most misunderstood. Last year, I spoke with a landlord named David who owned three single-family rentals in Ohio. He'd been reporting his rental income on Schedule C for years, unknowingly triggering self-employment taxes he never owed. That single mistake had cost him over $12,000 in unnecessary taxes over five years. When we walked through the proper Schedule E filing process together, he literally said, "Why didn't anyone explain this to me sooner?" That conversation inspired this guide.

Whether you own one rental property or fifteen, understanding Schedule E isn't just about compliance—it's about maximizing your legitimate deductions, properly reporting losses, and keeping more of your hard-earned rental income. The IRS processed over 10 million Schedule E forms in 2024, and studies suggest that nearly 40% of independent landlords either overpay their taxes or make errors that could trigger audits. As someone who's spent 15 years in the property management industry and built VerticalRent specifically to help independent landlords succeed, I've seen firsthand how proper tax reporting can mean the difference between a profitable rental business and one that bleeds money unnecessarily.

In this comprehensive guide, I'll walk you through everything you need to know about Schedule E—from the basic structure and line-by-line instructions to advanced strategies for reporting losses, handling multiple properties, and avoiding common audit triggers. We'll cover real-world examples, provide actionable checklists, and show you how modern property management tools can make tax season dramatically easier. Let's turn Schedule E from a source of stress into a tool for building wealth.

What You'll Learn in This Guide

• Exactly what Schedule E is, who must file it, and how it differs from other tax forms like Schedule C
• A complete line-by-line breakdown of Schedule E with specific examples for rental property owners
• How to properly report rental income from all sources, including security deposits and advance rent
• Every deductible expense category and how to maximize your legitimate write-offs
• How rental losses work, including passive activity rules and the $25,000 special allowance
• Common Schedule E mistakes that trigger IRS audits and how to avoid them

Understanding Schedule E: The Foundation Every Landlord Needs

Schedule E, officially titled "Supplemental Income and Loss," is an IRS form used to report income and expenses from rental real estate, royalties, partnerships, S corporations, estates, trusts, and residual interests in REMICs. For independent landlords, Part I of Schedule E is where the magic happens—it's specifically designed for reporting rental real estate income and losses. The form attaches to your personal Form 1040 and flows directly into your adjusted gross income calculation, affecting everything from your overall tax liability to your eligibility for various credits and deductions.

Understanding why Schedule E exists helps clarify its proper use. The IRS distinguishes between active business income (reported on Schedule C) and passive income (reported on Schedule E). Rental real estate is generally considered a passive activity under the tax code, which is actually advantageous for most landlords. When you report rental income on Schedule E, you avoid the 15.3% self-employment tax that applies to Schedule C income. For a landlord with $30,000 in net rental income, that's a potential savings of $4,590 annually—money that stays in your pocket simply by using the correct form.

The key distinction lies in material participation. If you're a typical landlord who collects rent, handles maintenance calls, and manages your properties without spending more than 750 hours annually in real estate activities, Schedule E is almost certainly your correct filing choice. However, if you qualify as a Real Estate Professional under IRS guidelines—meaning you spend more than 750 hours in real property trades or businesses and more time in real estate than any other profession—different rules may apply. For the vast majority of independent landlords with 1-15 properties who have day jobs or other primary occupations, Schedule E remains the appropriate form.

Schedule E also serves as your primary documentation for the IRS to track your rental property basis, accumulated depreciation, and carried-forward losses. Each property you own gets its own column (up to three per form, with additional forms for more properties), creating a clear record that follows your investment through its entire lifecycle. This documentation becomes crucial when you eventually sell a property and need to calculate your capital gains or losses. Many landlords I work with through VerticalRent don't realize that the depreciation they claim on Schedule E directly affects their tax liability at sale—a concept called depreciation recapture that we'll explore later in this guide.

Criteria	Schedule E	Schedule C
Typical Use	Passive rental income	Active business income
Self-Employment Tax	Not applicable	15.3% on net income
Material Participation Required	No	Yes
Loss Limitations	Passive activity rules apply	Active losses fully deductible
QBI Deduction Eligible	Yes, if qualified	Yes, if qualified
Best For	Landlords with other primary income	Real Estate Professionals

Who Must File Schedule E: Determining Your Filing Requirements

The filing requirements for Schedule E are straightforward in principle but can become nuanced in practice. Any individual who receives rental income from real estate must report that income to the IRS, and Schedule E is the designated vehicle for most landlords. This requirement applies regardless of whether you made a profit or loss, and regardless of whether you received a 1099 form from any source. The IRS expects you to report all rental income, even if it's just a few hundred dollars from renting out a spare room.

You must file Schedule E if you own rental property that you rent to others at fair market value, own property that you rent to a family member (even at reduced rates), receive royalty income from natural resources on land you own, or have income from partnerships, S corporations, estates, or trusts. For our purposes, we'll focus primarily on rental real estate, though the principles often overlap. If you rent property below fair market value to family members, special rules apply—you can only deduct expenses up to the amount of rental income received, effectively preventing you from generating artificial losses.

The duration of your rental activity also matters. If you rent a property for fewer than 15 days during the year, you're not required to report that income at all—this is the famous "Masters exemption" or "Augusta rule" that allows homeowners near major events to rent their homes briefly without tax consequences. However, you also cannot deduct any rental expenses beyond normal homeowner deductions. Once you cross the 15-day threshold, you enter Schedule E territory and must report all income and may deduct proportional expenses.

Important: Even if your rental property generates a net loss, you must still file Schedule E. The loss documentation is crucial for carrying forward unused passive losses to future years and for establishing your property's adjusted basis. Skipping Schedule E in a loss year can create significant complications down the road when you need to prove your cost basis at sale.

Multi-property owners face additional considerations. If you own more than three rental properties, you'll need multiple Schedule E forms—each form accommodates three properties in Part I. The IRS requires a summary page when filing multiple Schedule E forms, and keeping your property records organized becomes exponentially more important. This is precisely why we built VerticalRent with comprehensive expense tracking and reporting features—when you're managing multiple properties, having automated systems to categorize and document expenses by property isn't just convenient, it's essential for accurate tax filing.

Line-by-Line Breakdown: Navigating Schedule E Part I

Schedule E Part I spans lines 1 through 26 and contains everything you need to report your rental real estate activity. Understanding each line's purpose and requirements will help you file accurately and maximize your legitimate deductions. Let's walk through the form systematically, as this knowledge forms the backbone of proper rental income reporting.

Property Information (Lines 1-2)

Lines 1a through 1c ask for basic property information: the physical address (including street address, city, state, and ZIP code), the type of property (single-family residence, multi-family residence, vacation/short-term rental, commercial, or other), and the fair rental days versus personal use days. This last item is crucial—it determines what percentage of expenses you can deduct. If you used the property personally for more than 14 days or 10% of the rental days (whichever is greater), your deductions may be limited. Line 2 asks whether you actively participated in the rental activity during the year, which affects your ability to claim the $25,000 special allowance for rental real estate losses.

Income Section (Lines 3-4)

Line 3 captures your total rents received during the year. This includes all rent payments from tenants, regardless of whether they were received in cash, check, or through electronic payment systems. If you use VerticalRent's automated rent collection feature, your year-end reports provide this figure automatically, eliminating manual calculations. Line 4 is for royalties, which most residential landlords will leave blank unless they own mineral rights or similar assets generating royalty income.

Expense Categories (Lines 5-19)

The expense section is where landlords often leave money on the table. Each line represents a specific category of deductible expense, and understanding what qualifies for each category ensures you capture every legitimate deduction. Line 5 covers advertising costs for finding tenants—this includes online listing fees, yard signs, newspaper ads, and any promotional expenses. Line 6 is for auto and travel expenses incurred in managing your rental property, such as driving to collect rent, inspect the property, or meet with contractors. You can use either the actual expense method or the standard mileage rate (67 cents per mile in 2024).

Lines 7-11 cover cleaning and maintenance, commissions, insurance, legal and professional fees, and management fees respectively. If you pay a property manager, that expense goes on line 11. Lines 12-14 address mortgage interest, other interest (such as credit card interest for rental purchases), and repairs. The distinction between repairs (fully deductible in the current year) and improvements (depreciated over time) is one of the most common areas of confusion for landlords—we'll explore this distinction in detail shortly.

Lines 15-17 cover supplies, taxes (property taxes paid on the rental), and utilities you paid on behalf of tenants. Line 18 is for depreciation, one of the most powerful deductions available to landlords, and line 19 is a catch-all for other expenses not covered elsewhere. Always itemize line 19 expenses on a separate statement to support your deduction if questioned.

Calculating Net Income or Loss (Lines 20-26)

Lines 20-22 calculate your net income or loss by subtracting total expenses from total income. Lines 23-26 handle the allocation of losses between properties and the totaling of your Schedule E results for transfer to your Form 1040. If you have losses limited by passive activity rules, additional calculations on Form 8582 may be required before you can determine your deductible amount.

Reporting All Rental Income: What Counts and What Doesn't

Accurate income reporting is the foundation of a defensible tax return. The IRS defines rental income broadly, and many landlords inadvertently underreport by missing less obvious income sources. Understanding what constitutes rental income—and what doesn't—protects you from penalties while ensuring you don't overpay by reporting items that aren't actually taxable.

The most obvious form of rental income is the regular rent payments your tenants make. Whether you collect monthly, weekly, or on any other schedule, all rent received during the tax year must be reported. This includes rent paid by check, cash, electronic transfer, or money order. If a tenant pays rent late with a late fee, both the rent and the late fee are reportable income. Similarly, if you charge application fees, these are rental income when received, regardless of whether the applicant becomes a tenant.

Advance rent requires special attention because it's taxable in the year received, not the year it applies to. If a tenant pays first and last month's rent when moving in during December 2024, both payments are 2024 income—even though the last month's rent technically applies to a future period. This trips up many landlords who want to defer the income, but the IRS rules are clear: you report advance rent when you receive it, period.

Security deposits create the most confusion. A security deposit is NOT rental income if you plan to return it to the tenant at the end of the lease. It only becomes income when you have a legal right to keep it. If your tenant moves out and you keep $500 of a $1,500 security deposit for damages, only that $500 is rental income. However, if your lease calls the payment "last month's rent" instead of a security deposit, it's taxable as advance rent in the year received. Word choice in your lease agreements has real tax consequences.

Pro Tip: If a tenant pays for repairs, improvements, or services in lieu of rent, you must report the fair market value of those items as rental income. For example, if a tenant who is a plumber fixes your water heater (a $500 value) in exchange for $500 off rent, you still report $500 in rental income—and can deduct the $500 repair expense. The net effect is zero, but both transactions must appear on your return.

Lease cancellation payments—money a tenant pays to break their lease early—are rental income in the year received. The same applies to tenant reimbursements for utilities or other expenses you paid on their behalf. If you pay the water bill and the tenant reimburses you, you have rental income (the reimbursement) and a rental expense (the utility payment). Failing to report reimbursements while deducting the underlying expense is a red flag that can trigger IRS scrutiny.

To properly track rental property expenses and income throughout the year, consider using dedicated property management software rather than generic spreadsheets. VerticalRent automatically categorizes income by type and property, generating year-end reports that map directly to Schedule E lines. When April arrives, you'll have documentation ready rather than scrambling through bank statements trying to reconstruct your rental activity.

Maximizing Your Deductions: Every Expense Category Explained

Deductions reduce your taxable rental income dollar-for-dollar, making them the most direct path to tax savings. The key to maximizing deductions is understanding what qualifies, maintaining proper documentation, and claiming every expense the law allows. Many landlords I work with discover they've been missing legitimate deductions for years simply because they didn't know they qualified.

Operating expenses fall into several broad categories, each with specific rules. Repair and maintenance expenses are fully deductible in the year incurred—these include fixing leaky faucets, replacing broken windows, painting, patching drywall, and servicing HVAC systems. The defining characteristic of a repair is that it maintains the property in its current condition without adding significant value or extending its useful life. Contrast this with improvements, which must be depreciated over time. Improvements add value, adapt the property to new uses, or extend its life—think new roofs, kitchen remodels, room additions, or complete system replacements.

Insurance premiums for landlord policies are fully deductible, including hazard insurance, liability coverage, and umbrella policies that cover your rentals. If you pay for flood insurance in flood-prone areas or earthquake coverage in seismic zones, those premiums are deductible too. Mortgage insurance (PMI or MIP) on rental properties is deductible as well, though the rules have changed over the years—check current IRS guidance for the tax year you're filing.

Property taxes paid to state and local governments are deductible on Schedule E without the $10,000 SALT cap that limits deductions on Schedule A for personal residences. This is a significant advantage for landlords—if your personal property tax deduction is capped, your rental property taxes are not subject to that same limitation. Special assessments for local improvements (like sidewalks or sewer systems) generally must be added to your property's basis rather than deducted immediately, though assessments for maintenance of existing improvements may be currently deductible.

Professional fees encompass a wide range of services. Legal fees for evictions, lease preparation, or tenant disputes are deductible. Accounting fees for preparing your Schedule E or advising on rental tax issues qualify. If you use a property management company, their fees (typically 8-12% of collected rent) are fully deductible. Even the cost of property management software like VerticalRent qualifies as a deductible business expense for your rental activity.

Understanding the full scope of rental property tax deductions available to you can significantly impact your bottom line. From home office deductions if you manage properties from your residence, to the cost of educational materials like books and courses on landlording, to bank fees on your rental property accounts—the list extends far beyond what most landlords realize.

Expense Category	Schedule E Line	Examples	Deductible Immediately?
Advertising	Line 5	Listing fees, yard signs, newspaper ads	Yes
Auto/Travel	Line 6	Mileage to properties, travel for management	Yes
Cleaning/Maintenance	Line 7	Turnover cleaning, landscaping, pest control	Yes
Insurance	Line 9	Landlord policy, liability, flood insurance	Yes
Legal/Professional	Line 10	Attorney fees, CPA fees, software	Yes
Repairs	Line 14	Fixing appliances, plumbing repairs, painting	Yes
Property Taxes	Line 16	Annual property tax payments	Yes
Improvements	Line 18 (Depreciation)	New roof, kitchen remodel, HVAC replacement	No—depreciated over time

Depreciation: Your Most Powerful Tax Deduction

Depreciation allows landlords to deduct the cost of their rental property over time, even though the property may actually be appreciating in market value. This powerful deduction shelters rental income from taxes and can even create paper losses that offset other income in certain circumstances. Understanding depreciation is essential for every landlord because it directly impacts your annual tax liability, your property's adjusted basis, and your eventual tax bill when you sell.

The IRS requires residential rental property to be depreciated over 27.5 years using the straight-line method. This means you divide your depreciable basis by 27.5 to determine your annual depreciation deduction. For example, if you purchase a rental property for $300,000 and the land is valued at $60,000, your depreciable basis is $240,000 (you cannot depreciate land). Your annual depreciation would be $240,000 ÷ 27.5 = $8,727. This $8,727 reduces your taxable rental income each year, even though you haven't spent any additional money.

Determining your depreciable basis requires separating land value from building value. The IRS doesn't prescribe a specific method, but common approaches include using the allocation on your property tax assessment, obtaining an appraisal, or using comparable sales data. Whatever method you choose, document it thoroughly and apply it consistently. The IRS accepts reasonable allocations, but wildly inflating the building value relative to land (to maximize depreciation) is an audit trigger.

Capital improvements add to your depreciable basis and are depreciated separately over their own recovery period. That new roof? Depreciate it over 27.5 years. New appliances? Five to seven years. New carpeting? Five years. New HVAC system? 27.5 years. Each improvement gets its own depreciation schedule, added to your existing property depreciation. This is why meticulous record-keeping is crucial—you need to track the cost and date of every improvement throughout your ownership period.

Critical Warning: Depreciation is mandatory, not optional. Even if you don't claim depreciation on your tax returns, the IRS will calculate depreciation recapture when you sell as if you had claimed it. This means skipping depreciation costs you deductions now while still triggering recapture taxes later. Always claim your full depreciation deduction—there's no benefit to leaving it on the table.

The concept of depreciation recapture becomes relevant when you sell your rental property. All depreciation claimed (or allowed) during your ownership period is "recaptured" and taxed at a maximum rate of 25% upon sale. If you claimed $80,000 in depreciation over your ownership period and sell for a $100,000 gain, $80,000 is taxed at the recapture rate (up to 25%) and only the remaining $20,000 qualifies for the more favorable long-term capital gains rates. This doesn't make depreciation a bad deal—you're essentially getting an interest-free loan from the government by deferring taxes through depreciation deductions now and paying them later at sale.

Handling Rental Losses: Passive Activity Rules and Special Allowances

One of the most complex aspects of rental property taxation involves how losses are treated. Unlike regular business losses that generally offset any type of income, rental losses are classified as passive losses and face special limitations under the Passive Activity Loss Rules. Understanding these rules is essential because they determine whether you can use your rental losses to offset W-2 wages, investment income, or other non-passive income in the current year.

The general rule is simple: passive losses can only offset passive income. If you have a $10,000 loss from your rental property and $8,000 in passive income from another source (like a limited partnership), only $8,000 of your rental loss can be used this year. The remaining $2,000 is suspended and carried forward to future years when you have passive income to offset or until you sell the property. These suspended losses don't disappear—they accumulate and become fully deductible when you dispose of your entire interest in the property.

However, Congress created an important exception for active rental landlords: the $25,000 special allowance. If you actively participate in your rental activity and your modified adjusted gross income (MAGI) is $100,000 or less, you can deduct up to $25,000 in rental losses against non-passive income like your salary. Active participation is a lower standard than material participation—it simply requires that you make management decisions like approving tenants, setting rental terms, or authorizing repairs. Most independent landlords easily meet this standard.

The $25,000 allowance phases out as your income increases. For every $2 of MAGI above $100,000, you lose $1 of the allowance. This means the allowance is completely eliminated at $150,000 MAGI. For married couples filing separately who lived together during the year, the allowance is cut in half ($12,500) and phases out between $50,000 and $75,000. This phase-out often surprises dual-income households who discover their rental losses can't offset their salaries once their combined income crosses the threshold.

A separate set of rules applies to Real Estate Professionals—individuals who spend more than 750 hours annually in real property trades or businesses and more time in real estate than any other occupation. Real Estate Professionals can treat rental activities as non-passive, allowing unlimited deduction of rental losses against any type of income. This status is powerful but comes with strict documentation requirements. The IRS frequently challenges Real Estate Professional claims, so meticulous time logs are essential if you pursue this strategy.

For most independent landlords with 1-15 properties and full-time jobs outside real estate, the passive activity rules mean rental losses may be limited or suspended in any given year. However, all is not lost—those suspended losses create future tax benefits and represent paper losses that don't affect your actual cash flow. VerticalRent's reporting features help you track accumulated passive losses across years, ensuring you capture these deductions when they become available.

Multiple Properties: Managing Schedule E Complexity

As your rental portfolio grows, Schedule E complexity grows with it. Each property requires separate income and expense tracking, its own depreciation schedule, and proper allocation of any shared expenses. Managing this complexity efficiently separates successful landlords from those who drown in paperwork and miss valuable deductions.

The Schedule E form accommodates three properties per page. If you own four or more rental properties, you'll need additional Schedule E forms, with totals flowing to a summary page. While this sounds straightforward, the logistics of maintaining separate records for each property can become overwhelming without proper systems. Every receipt needs to be tagged to a specific property. Every bank transaction needs to be allocated. Every trip to a property needs mileage tracked separately. This is where technology becomes not just helpful but essential.

Mixed-use properties present unique challenges. If you own a duplex, live in one unit, and rent the other, you must allocate all expenses between personal use and rental use—typically based on square footage or the number of units. If your rental unit represents 50% of the property, you can deduct 50% of mortgage interest, property taxes, insurance, and utilities on Schedule E. The other 50% goes on Schedule A as personal deductions (subject to SALT limits). Depreciation applies only to the rental portion, calculated on half the building's depreciable basis.

Vacation rentals add another layer of complexity with the personal use day rules. If you use a vacation property yourself for more than 14 days or 10% of the days it's rented (whichever is greater), your rental expense deductions are limited. In some cases, you can only deduct expenses up to the amount of rental income—effectively preventing a vacation home from generating tax losses while you enjoy personal use. The IRS is particularly vigilant about vacation property reporting because the potential for abuse is high.

Maintaining separate bank accounts for each property is a best practice that simplifies record-keeping immensely. When every transaction in a dedicated account relates to a specific property, categorization becomes automatic. VerticalRent integrates with your bank accounts using AI-powered categorization to automatically classify transactions by property and expense type, eliminating hours of manual sorting at tax time. Our AI risk scoring feature can also help evaluate your portfolio's performance across properties, highlighting which investments are generating the best returns after taxes.

Cost segregation studies represent an advanced strategy for landlords with multiple properties or higher-value assets. These engineering-based analyses identify property components that can be depreciated over shorter periods (5, 7, or 15 years instead of 27.5 years), accelerating your depreciation deductions. For properties worth $500,000 or more, cost segregation often pays for itself many times over. The resulting front-loaded deductions can dramatically improve your early-year cash flow and create larger passive losses to offset other income.

Common Schedule E Mistakes That Trigger Audits

The IRS has identified rental property returns as a significant area of non-compliance, and certain Schedule E patterns reliably attract audit attention. Understanding these red flags helps you file accurate returns while avoiding the stress and expense of IRS scrutiny. Most audit triggers involve either honest mistakes that create statistical anomalies or intentional underreporting that the IRS has learned to identify.

Consistent year-over-year losses rank among the top audit triggers for rental properties. While losses are common and legitimate—especially in early years when depreciation and mortgage interest are highest—reporting losses for many consecutive years raises questions about whether your activity is really conducted for profit or is actually a hobby. The IRS may challenge whether you're genuinely trying to make a profit or simply generating paper losses to shelter other income. Document your profit motive by maintaining proper records, setting appropriate rents, making improvements, and demonstrating that you respond to market conditions.

Misclassifying improvements as repairs is another common audit target. The IRS knows that landlords are tempted to deduct large expenses immediately rather than depreciating them over years. That new roof should not appear on the repairs line, and neither should a bathroom renovation or a complete appliance suite replacement. When your repair expenses seem disproportionately high compared to other landlords with similar properties, expect questions. The safe harbor rules for routine maintenance and de minimis safe harbor ($2,500 per item for taxpayers without audited financial statements) provide clear guidelines—follow them.

Failing to report all income—particularly cash payments or security deposits you kept—leads to significant audit risk, especially when tenants report paying more rent than you show receiving. The IRS cross-references data points, and discrepancies between what tenants claim as housing expenses and what landlords report as income get flagged. Similarly, if you receive a 1099-K from payment platforms like PayPal, Venmo, or your property management software, that income is reported to the IRS. It had better match your return.

Audit Protection Tip: The single best defense against audit challenges is thorough documentation. Keep receipts for every expense, maintain mileage logs for property-related travel, preserve before-and-after photos for repairs, and save all tenant communications. If audited, the landlord with organized records fares far better than one reconstructing history from memory. Cloud-based storage through platforms like VerticalRent ensures your records are backed up and accessible when needed.

Taking home office deductions for rental activities requires careful documentation. You can deduct a portion of your home expenses if you have dedicated space used regularly and exclusively for managing your rental properties. However, the home office must be your principal place of business for the rental activity, and you must have significant administrative or management activities conducted there. Casual use of your kitchen table to pay bills doesn't qualify. If you claim this deduction, be prepared to substantiate it thoroughly.

Deducting personal expenses disguised as rental expenses remains a persistent audit trigger. That trip to visit your out-of-state rental property is deductible, but the side trip to the beach is not. The new lawn mower is deductible if used exclusively at rental properties, but not if it sits in your garage for personal use. Mixed-use items must be allocated between personal and rental use based on actual usage patterns. The IRS isn't unreasonable—they simply expect honesty and proportionality.

Repair vs. Improvement: The Distinction That Matters Most

Perhaps no area of rental property taxation causes more confusion—and more audit adjustments—than the distinction between repairs and improvements. Getting this right affects both your current-year deductions and your property's depreciable basis for years to come. The IRS has issued extensive regulations on this topic, including safe harbors that provide clarity for landlords who follow them.

Repairs maintain your property in its current operating condition without adding significant value or extending its life. Examples include fixing a broken window, patching a hole in drywall, replacing a few shingles after a storm, unclogging drains, replacing a faucet, or repainting a room. These expenses are fully deductible in the year incurred because they simply keep the property functioning as it was designed to function.

Improvements, by contrast, add value to your property, adapt it to new or different uses, or extend its useful life beyond its original condition. A new roof, replacement windows throughout the building, a kitchen remodel, added square footage, new HVAC systems, or bathroom renovations typically qualify as improvements. These costs must be capitalized and depreciated over time—27