deductions on freshening up IP

[IanF]

Hi all,

Yes I know there are better things to do on Boxing Day but the wife and baby are still asleep.

Anyway, we have a 30yr old unit badly in need of a good freshening up. It needs a new kitchen (still original), painting and possibly carpet.

The question is are these tax deductible and if not how can they be made so? The tenants have recently moved out so unit is empty hence the thought about this being a good time to freshen up.

Have a MERRY CHRISTMAS ALL and SUCCESSFUL 2004.

Ian

 

[geoffw]

There's two way s you could do this.

1. Do the work (or have it done). Keep all receipts, and enter items incurred into a depreciation schedule (an accountant can do this). There may be a low value pool applicable, allowing you to claim items below a certain value immediately; there will be some items which would be classed as repairs rather than improvements, which you could claim immediately. It depends on how long you've had the house. If you're painting to bring it back to the condition you bought it, then I believe it can be classed as a repair. The kitchen though for instance would probably be regarded as an improvement.

2. After the work is done, have a quantity surveyor assess its value. You will, of course, not have any receipts. A QS estimate can enable your own work to be included in the values to be depreciated. A QS report will give you a full depreciation schedule, which can be used for many years.

However, the tax deductibility is secondary. Even if you could not get a single cent back in tax, you are doing two things:

1. Adding to the value of the property. You will quite possibly add a lot more value than what you spent- and you will be able to draw against this added equity.

2. Adding to the rent. (But do your homework here. Spending $10,000 for $5pw extra rent is not worth it- the money would be better off in the bank. 10% return on investment is a minimum. I've been able to get 80% in some circumstances.

 

[Dos]

Hi Geoff and Ian,

What if the work was needed once you had purchased the property? We have just purchased a place that badly needs a paint. It would definitely be classed a repair as paint is peeling and cracking and is in need of it ASAP.

Would this be claimable? As you say, spending the $2600 may not be woth it if CG isn't expected to be big or rent isn't going to increase much.

Any thoughts appreciated!

Dos

 

[DaleGG]

Hi Dos

No, that cost would not be tax deductable. The tax office view is that the paint does not return the property to the original state when you bought it and so is a capital cost.

Dale

Originally posted by Dos
Hi Geoff and Ian,

What if the work was needed once you had purchased the property? We have just purchased a place that badly needs a paint. It would definitely be classed a repair as paint is peeling and cracking and is in need of it ASAP.

Would this be claimable? As you say, spending the $2600 may not be woth it if CG isn't expected to be big or rent isn't going to increase much.

Any thoughts appreciated!

Dos

 

[Dos]

Cheers for the info Dale, hope your new place is going well!

Dos

 

[voodoo]

Hi,

I purchased an IP about 18mths ago and had a QS do a depreciation schedule for me back then.

The house is approx 15yrs old and it had long term tenants up until 5mths ago when they moved out.
At that time I had no choice but to carpet and repaint, as the carpet was worn thru and the walls were a mess.

The R/E actually wrote a letter for me stating that without a paint and new carpet I would be struggling to find a tenant.

So is this a capital expense or Maintenance?

I would say maintenance because I had no choice, it was past its used by date.

Do I need to get the QS back for depreciation on these items or can my accountant just add it on?

Cheers,

 

[DaleGG]

Hi

The painting could be classed as a tax deduction, but, the new carpets will have to be depreciated and the cost will suffice for your accountant to add the information to your tax return without the need for a new QS report.

Dale

Originally posted by voodoo
Hi,

I purchased an IP about 18mths ago and had a QS do a depreciation schedule for me back then.

The house is approx 15yrs old and it had long term tenants up until 5mths ago when they moved out.
At that time I had no choice but to carpet and repaint, as the carpet was worn thru and the walls were a mess.

The R/E actually wrote a letter for me stating that without a paint and new carpet I would be struggling to find a tenant.

So is this a capital expense or Maintenance?

I would say maintenance because I had no choice, it was past its used by date.

Do I need to get the QS back for depreciation on these items or can my accountant just add it on?

Cheers,

 

[voodoo]

Thanks DaleGG