IP repairs-tax deductible
- Thread starter virgo
- Start date
Interest should be deductible as its for investment purposes. However the repairs sounds like they are actually replacements so are likely of a capital nature and will be depreciated and not an immediate repair writeoff.
A quick test for expense vs capital:
I repaired the ___________
I replaced the ___________
A quick test for expense vs capital:
I repaired the ___________
I replaced the ___________
If they are bringing the gutters back to the state they were when the place was bought then it's deductible. If the gutters were already dodgy when the place was bought then it's not. That's my understanding anyway.
Depends on the extent to which they are being replaced. In both cases you get deductions.
In the example of gutters or fences, if they were damaged eg a few metres need replacing due to a tree falling on them, then its a repair. If all the gutters are rusted out due to being old, its a replacement and the depreciation is deductible.
For painting, if its painting a wall that had a hole made by a tenant, repair. If its repainting a whole property due to general age and wear, its capital and depreciation is deductible.
May I please ask further on this topic...
If I have an IP that hasn't yet rented out, and I would like to do minor updates to the place beforehand, would it still be tax deductible? Updates would be: sealing both shower floors (there was a crack in one), pruning trees, steam-cleaning carpets, painting).
I'm hearing different stories from different people about being able to claim only when the property is being tenanted, not before tenancy. Not sure if there is a difference but just wanted to make sure.
Thanks in advance.
If I have an IP that hasn't yet rented out, and I would like to do minor updates to the place beforehand, would it still be tax deductible? Updates would be: sealing both shower floors (there was a crack in one), pruning trees, steam-cleaning carpets, painting).
I'm hearing different stories from different people about being able to claim only when the property is being tenanted, not before tenancy. Not sure if there is a difference but just wanted to make sure.
Thanks in advance.
Would fall into the initial repairs ruling, where defects/repairs known at purchase are treated as capital in nature and need to be depreciated, the ATO assumes a price adjustment was made on sale price to accomodate the work required.
As you have no rental income to attribute the repairs against, not an immediate deduction.
Its all laid out in the ATO rental properties handbook, http://www.ato.gov.au/download.asp?file=/content/downloads/ind00313554n17290612.pdf page 14 and 15.
Thank you Dave. So while the cost cannot be immediately deducted, may I start claiming the repairs as depreciation at the next tax year(s) - assuming it is already tenanted by then?
Sorry for all the questions, I'm still trying to wrap my head around taxation benefits for IP.
edit: thanks for the link. I've got the handbook somewhere and would need to re-read it.
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edit 2:
From pages 12-13 in the Rental Properties handbook:
"the property remains available for rental but there is a short period when the property is unoccupied, for example, where unseasonable weather causes cancellations of bookings or advertising is unsuccessful in attracting tenants."
"If you no longer rent the property, the cost of repairs may still be deductible provided:n the need for the repairs is related to the period in which the property was used by you to produce income, andn the property was income-producing during the income year in which you incurred the cost of repairs."
Therein lies the confusion because the advice is rather open-ended.
Especially the 'income producing during the income year in which you incurred the cost of repairs' bit.
Sorry for all the questions, I'm still trying to wrap my head around taxation benefits for IP.
edit: thanks for the link. I've got the handbook somewhere and would need to re-read it.
===
edit 2:
From pages 12-13 in the Rental Properties handbook:
"the property remains available for rental but there is a short period when the property is unoccupied, for example, where unseasonable weather causes cancellations of bookings or advertising is unsuccessful in attracting tenants."
"If you no longer rent the property, the cost of repairs may still be deductible provided:n the need for the repairs is related to the period in which the property was used by you to produce income, andn the property was income-producing during the income year in which you incurred the cost of repairs."
Therein lies the confusion because the advice is rather open-ended.
Especially the 'income producing during the income year in which you incurred the cost of repairs' bit.
You can claim the capital works deduction from when the property is first available for rent (not necessarily when then first tenant moves in). If your reno is quick and you have a signed management agreement or advertising in place, you can probably do it from when you settle. If your reno is a months worth of work then you dont claim the months worth of depreciation.
When you get a depreciation schedule drawn up, they will ask for the available to rent from date and start the DS as of that date.
