Tax Question

[Tranquilo]

In the first 12months of a IP if you do any renovations can you claim any tax deductions?. Why I ask is there is a property that I'm interested in would need a Kitchen and bathroom reno.

Thanks if anyone could jump in quick for this one

 

[pinkboy]

From the very first moment you own the IP you can claim tax deductions. They are either added to the cost base upon sale or depreciated dependant if they are repairs, replacement, improvement etc.

Are you considering the IP for the tax benefits or are you looking at longterm CG and cash flow? If the former, it might pay to get a bit more savvy in your reasons for purchasing.

pinkboy

 

[Tranquilo]

Thanks heaps. Yes it is for long term CG but is a older style brick home so the Kitchen and bathroom need to be done. If I was to purchase this home I will also be painting the whole house, sanding the floors and 2 of the bedrooms will need built in robes install. I'm going back for a second look today so if I do get I'll post up in the reno section of the forum.

 

[Rob G.]

Sounds like either capital improvements or initial repairs.

These are not deductible but may be capitalised into the cost of any depreciating assets or the building capital works.

Renting for a year before performing the renos does not make it deductible.

Factor the lack of immediate tax deductions into your cash flow analysis.

 

[Paul@PFI]

And the kitchen and bathroom reno's would involve some (smaller) depreciation for some items but a larger value to be written off over 40 years (2.5% pa).

Outright deduction. No.

 

[chindonly]

But don't forget the write-off if there is any value to these components.

 

[datto]

Who renovates a kitchen or bathroom these days? They're all repaired lol.

 

[Flossy]

Depreciation Report - Before or after Reno's?

From the very first moment you own the IP you can claim tax deductions. They are either added to the cost base upon sale or depreciated dependant if they are repairs, replacement, improvement etc.

pinkboy

I am in the same position:
Buying a house but before letting the tenants in I will convert a room for 3rd bedroom, polish and replace floors and paint inside and out. Most will be immprovement but some of the work will be repairs.
In a few years I will replace the kitchen, bathroom, built in robes and make other improvements.

Do I get the depeciation report immediatley after settlement and before immprovement or after the improvements are made?

Is there any tax benefit in starting the lease before the renos are done even though the tenants won't move in until it's finished?

Thanks,
Flossy

 

[yee3890]

Do I get the depeciation report immediatley after settlement and before immprovement or after the improvements are made?
Prob Yes before before reno. see Scott from Depreciator to get one done
Unfortunately, many renovators throw money away without realising Let?s say the values look like this:

Carpet $1000
Blinds $1000
Curtains $370
Stove $750
Dishwasher $500
Light fittings $450
Washing machine $400
Total $3,870

For a tax payer on a 33% tax rate, their tax refund on these items is $1,277. So throwing these items away is the same as throwing money away!

Normally these items are depreciated over a number of years, but because they are being scrapped the full tax deduction is available in year 1.

 

[Flossy]

Prob Yes before before reno. see Scott from Depreciator to get one done
Unfortunately, many renovators throw money away without realising Let?s say the values look like this:

Carpet $1000
Blinds $1000
Curtains $370
Stove $750
Dishwasher $500
Light fittings $450
Washing machine $400
Total $3,870

For a tax payer on a 33% tax rate, their tax refund on these items is $1,277. So throwing these items away is the same as throwing money away!

Normally these items are depreciated over a number of years, but because they are being scrapped the full tax deduction is available in year 1.

Thanks for the tip, I found the Depreciator website and downloaded the free eBook. Excellent information and fairly easy to understand even for a novice.
I will give Depreciator a call to organise the initial report.

It sounds like I will not be able to claim initial repairs or improvements after first purchasing without having rented the house out but I will hopefully have an expert help me with that.
This brings me to my request for recommendations for Tax accountants in Adelaide.

Thanks,
Flossy

 

[BLTN]

Unfortunately, many renovators throw money away without realising Let?s say the values look like this:

Carpet $1000
Blinds $1000
Curtains $370
Stove $750
Dishwasher $500
Light fittings $450
Washing machine $400
Total $3,870

For a tax payer on a 33% tax rate, their tax refund on these items is $1,277. So throwing these items away is the same as throwing money away!

Normally these items are depreciated over a number of years, but because they are being scrapped the full tax deduction is available in year 1.

I don't get what you are saying here. Those values you list - are they the new products or the old ones that you are throwing away?

If they are new, I thought they were depreciated according to the rules relevant to the individual item.

If they are old, how can you attribute any price to them?

 

[Paul@PFI]

Do I get the depeciation report immediatley after settlement and before immprovement or after the improvements are made?
Prob Yes before before reno. see Scott from Depreciator to get one done
Unfortunately, many renovators throw money away without realising Let?s say the values look like this:

Carpet $1000
Blinds $1000
Curtains $370
Stove $750
Dishwasher $500
Light fittings $450
Washing machine $400
Total $3,870

For a tax payer on a 33% tax rate, their tax refund on these items is $1,277. So throwing these items away is the same as throwing money away!

Normally these items are depreciated over a number of years, but because they are being scrapped the full tax deduction is available in year 1.

Tax advice ??? Not sure how a $1277 refund arises since items $400 and under can be written off at acquisition. Those above are depeciated. My maths doesnt give same outcomes.

I would get the depreciation report inspection done before the extra works then have it updated for the changes. In the single report. It will include any write offs that way.

 

[speary]

Paul, I think yee3890 was referring to getting depreciation report done for scrapping purposes resulting in a balancing adjustment on the items replaced.

 

[Tranquilo]

Now I seen a accountant and if I can advertise the property in the last 2 weeks of this financial year he can claim for me the floors and painting as repairs for the 2014 return. Now he said for an example only if I was to spend say $10,000 on capital works bathroom and Kitchen he could claim back depreciation of $2000 a year for 5 years.

Anyway I'm going to do the floor boards and paint myself. The bathroom desperately needs doing, but the kitchen we can just change some doors and knobs and will look great.

Thanks again everyone.

 

[jrc]

Now I seen a accountant and if I can advertise the property in the last 2 weeks of this financial year he can claim for me the floors and painting as repairs for the 2014 return. Now he said for an example only if I was to spend say $10,000 on capital works bathroom and Kitchen he could claim back depreciation of $2000 a year for 5 years.

Anyway I'm going to do the floor boards and paint myself. The bathroom desperately needs doing, but the kitchen we can just change some doors and knobs and will look great.

Thanks again everyone.

You have had two very experienced accountants in property investing give you advice and you have chosen to follow the advice of someone who is going to raise red flags at the taxation office. New owner, and repairs claimed before any income is earned. Danger Will Robinson!

 

[Rob G.]

Now I seen a accountant and if I can advertise the property in the last 2 weeks of this financial year he can claim for me the floors and painting as repairs for the 2014 return. Now he said for an example only if I was to spend say $10,000 on capital works bathroom and Kitchen he could claim back depreciation of $2000 a year for 5 years.

Anyway I'm going to do the floor boards and paint myself. The bathroom desperately needs doing, but the kitchen we can just change some doors and knobs and will look great.

Thanks again everyone.

You should at least be on notice by now that this may be incorrect.

The Accountant knows this is incorrect.

Or perhaps the accountant has been quoted out of context, or even full disclosure has not been made.

 

[Tranquilo]

Yes I must have got it wrong. I'm going to give a ring today.

 

[Paul@PFI]

Forget what the accountant says. You are the one who gets the penalties, interest and arrears of tax shortfall. And they will detect it in two years time perhaps and review a few years so the problem may be multiplied. You can blame the accountant but I would imagine there is no proof. You signed the return.

Some acountants think its their job to keep clients happy so they keep coming back. A good tax person will be honest and give quality advice that protects you rather than make you happy. Tenancy agreement would be the key issue not advertising.

If the tax agent says what you believe then you dont have a rental savvy person assisting you.