How to track capital improvements by unit so depreciation and a sale are easy

Why each improvement needs its own line

An improvement is treated as a separate asset from the building. IRS Publication 527 says to depreciate an improvement to a rental building over the same recovery period as the building, starting when the improvement is placed in service, not when you bought the building. The depreciation rules are in IRS Publication 527 and IRS Publication 946.

Two things follow. First, a kitchen done in 2026 starts its own depreciation clock in 2026. Second, your basis in the property is its cost plus improvements, less depreciation. When you sell, a missing improvement means a gain that is too big, because you forgot to subtract part of what you spent.

First decide: repair or improvement

The log is only for improvements. The regulations treat work as an improvement when it betters the property, restores it or adapts it to a new use. The text is in Treasury Regulation 1.263(a)-3-3). Routine upkeep and small purchases follow other rules, covered in the de minimis safe harbor and the routine maintenance safe harbor.

A quick test: a new roof, a kitchen remodel, new windows or a new HVAC system go in the log. A repainted wall, a patched leak or a replaced faucet washer do not. When it is unclear, record the invoice and ask your preparer once. Their answer becomes your rule.

What each log line should hold

• Description, in words a stranger understands: "Kitchen remodel, unit 2".
• Location: the unit number, or "Building" for a roof, parking lot or boiler that serves all units.
• Date placed in service: the day it was finished and ready to use, which can differ from the invoice date.
• Total cost: every invoice that belongs to the project, including permits and installation, added up.
• Vendor and a link to the invoice, the permit and the contract.
• Class: building improvement, or an item with a shorter life such as an appliance or carpet.
• Disposal date, filled in later when the item is replaced or the property is sold.

Record the full cost of the project, not just the main invoice. If the tile came from one store and the labor from a contractor, both belong on the line. Keep the pieces in a short list so the total can be checked.

A log for a four unit building

Example a made-up four unit building. In 2026 the owner replaces the roof for $18,000 and remodels the kitchen in unit 2. The kitchen invoices are cabinets $9,000, counters $3,200 and installation $2,000, which add to $14,200. The owner also replaces a water heater in unit 3 for $1,450. The log has three lines.

Capitalized in 2026: $18,000 plus $14,200, which is $32,200. If the preparer chooses the de minimis safe harbor for the $1,450 water heater, it is an expense, because it is under the $2,500 per item limit for owners without audited financial statements. If not, it is added as a third improvement. Either way the invoice stays in the unit 3 folder.

For scale, a straight line over 27.5 years gives about $654.55 a year on the roof ($18,000 divided by 27.5) and about $516.36 on the kitchen ($14,200 divided by 27.5). The first and last year are smaller because of the mid-month rule. Your preparer applies the IRS tables, so treat these as a rough guide, not a filing number.

Why "by unit" is worth the trouble

• A tenant asks when the unit was last updated, and you can answer in seconds.
• You see which units absorb the most money, which helps with rent and replacement decisions.
• When a roof is replaced, the old roof's leftover basis may be written off if you made the partial disposition election, which needs the old roof's cost. See partial disposition election.
• An insurance claim or a casualty needs the original cost of what was lost. See casualty losses.
• At sale, your adjusted basis is a sum of lines instead of a research project. See recording the sale of a rental.

A habit that keeps the log current

1. When a job over a few hundred dollars is paid, ask: is this a repair or an improvement?
2. If it is an improvement, add the log line the same day, with the unit and the invoice.
3. At month-end close, check that every improvement account entry has a log line.
4. At year end, send the log to your preparer with the rest of the package in what to send your CPA.

Records of this kind matter beyond tax time. Publication 527 says to keep records that support basis and the cost of improvements for as long as you own the property, plus the normal period after you file the return that reports its sale. See how long to keep rental records.

How DoorKeeping handles it

In DoorKeeping each property has its own books, and capital improvements go to their own accounts apart from the repair accounts that map to Schedule E lines. Documents such as invoices and permits are stored with the property and unit. You can ask Claude or ChatGPT to read a bill, propose whether it looks like a repair or an improvement and add the log line, and the entry waits for your one-tap approval. DoorKeeping does not give tax advice, so your preparer makes the final call on each item.

Sources

1. IRS, Publication 527, Residential Rental Property (2025), read Oct 30, 2026
2. IRS, Publication 946, How To Depreciate Property, read Oct 30, 2026
3. eCFR, 26 CFR 1.263(a)-3, Deduction for repairs and maintenance, and capitalization of improvements, read Oct 30, 2026

Questions

What is a capital improvement log?

A list with one line per improvement: what it was, which unit or building, the date placed in service, the full cost and a link to the invoices.

Why not just keep the invoices?

Invoices tell you what you paid. The log turns them into depreciation start dates and a total of improvements, which you need for your return and for the sale.

Do I log a repair?

No. Repairs are expenses in the year paid. Only improvements, which better, restore or adapt the property, are capitalized and logged.