should i fix before or after?

[veebeeseewee]

Hi all,

I've finally got my first ip under contract at the moment, have just sent the contract to the bank for approval. I've just done the building and pest inspection today, and apparently there are plenty of works to do, eg painting, patch up the crack(just one or two I could see), cleaning up the yards, replacing hot water system and exhaust fan, taps (some are faulty or loose etc), even electrician to check through the whole house later. All these dont seem to bother the vendor who lives there, but for me to get quality tenants, I think I should roll up my sleeves!!

My question is, if I do all these before renting, will all these costs be tax deductible?

All comments and advice are welcome as usual!

 

[twobobsworth]

My question is, if I do all these before renting, will all these costs be tax deductible?

Maybe the question should be will these be tax deductible if I do them after renting.

 

[Peter_Tersteeg]

It sounds like they're capital works, which would mean they're deductable over time on a depreciating schedule.

You also need to clear any pre-settlement works with the vendor. Personally I wouldn't allow a purchaser access to make changes prior to settlement, although I would allow them to get quotes done. There's a risk to the vendor that the works won't be completed properly and you won't settle, leaving them with a house in worse condition thay they started.

 

[veebeeseewee]

Depreciation it is! Thanks, Peter.

The vendor is very a easy going person and she's already halfway moving her stuff out of this house to her other living place. If that's a risk for the vendor not purchaser, I can guarantee the settlement will proceed as scheduled. Unless I'll be the one who's running the risk that the vendor can choose not to settle, I'll then have to replan and just obtain quotes as you suggested.

As the agent said I can choose to get the tenants ready prior to settlement, I don't want to rent the place out as it is.

 

[Mick C]

From ATO point of view it needs to be rented out before you can claim. However you can still depreciate the goods and physical asset/repairs over the time it DOES become rented out.


i'm currently in the process of doing reno to my IP.
I completed the frist set of renos that may "bother" the tenants or where i would need internal access ie Polish floor boards,painting and kitchen repairs etc...

The new tenants are moving in next Monday
Once the tenants move in i will complete the "another" reno's where internal access is not required and will not bother the tenants ie Painting the outside, Landscaping, repairs to the carport etc

Regards
Michael

 

[Wunderbar]

Yeah like the Bear said there is a difference between 'maintenance' and 'capital works'. Broadly speaking, 'maintenance' is just repairs to fix things on the property. These are fully deductible.

'Capital works' involve putting new 'things' into the property, such as a new kitchen/washing machine/carpets etc which can be depreciated over time.

 

[locko24]

Hi veebeeseewee
Congrats on the first place!
Always exciting!!

 

[veebeeseewee]

Thanks for your advice, Michael and Wunderbar. Sounds like it should be fine for me to do some works prior renting. In my case, there will be both maintenance and capital works involved.

Thanks, locko! It is really exciting for me.

 

[Seeka]

Maintenance/repair (as opposed to capital works) done on a new purchase prior to renting out the property is not tax deductible in my understanding.
Happy to be corrected on this point though if wrong.

 

[veebeeseewee]

Maintenance/repair (as opposed to capital works) done on a new purchase prior to renting out the property is not tax deductible in my understanding.
Happy to be corrected on this point though if wrong.

Thanks Seeka! I've checked with my accountant and you are right. However now that the vendors promised to fix most of the things up before settlement, I won't have to worry till after the tenants move in now.

 

[LazyHorse]

Hi

Sorry to Hijack the thread but I feel this is a question relevant to the post...


In the above situation, are we better to get the "depreciation audit" done before or after the repairs?

Regards

 

[Peter_Tersteeg]

I usually get depreciation schedules done after doing improvements. Given that I often do a lot of the work myself, it costs me $X to do it, but that doesn't count labour.

The depreciation report increases to the cost of the improvements to account for time and labour, which means more deductions for me

For what it's worth, most pre-purchase inspections are very pesemistic. Chances are that a lot of the proposed repairs aren't truly necessary. In our own home it took us 5 years to replace the hot water system (and we didn't move it outside as suggested). We still need to replace the roof that's never had a leak in 7 years since we moved in!

Building reports are written that way to ensure the builder doesn't have any liablities down the track. I tend to look for issues around structure, not the cosmetics. An off the record chat with the builder on what's really necessary can also be helpful.