Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

Which type of improvements are classified as tax-deductible expenses on rental property?

1. Cosmetic Enhancements

2. New Roofs or Flooring

3. Plumbing Repairs

4. Expensive Fixtures

The correct answer is: New Roofs or Flooring

Improvements that are classified as tax-deductible expenses on rental property include any work that adds significant value to the property, extends its useful life, or adapts it to a different use. New roofs or flooring fit this classification because they enhance the property’s value and can be considered capital improvements. These types of improvements generally lead to a longer-term benefit and can be depreciated over time on tax returns. In contrast, many cosmetic enhancements may only boost aesthetic appeal without adding long-term value, making them less likely to be tax-deductible. While plumbing repairs can be essential upkeep and are usually deductible as current expenses, they don't typically qualify as improvements. Expensive fixtures, while they may enhance the property, would generally need to meet the criteria of being a capital improvement rather than a cosmetic upgrade to be classified as tax-deductible. Therefore, new roofs or flooring are considered significant improvements and are categorized appropriately for tax purposes.