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Rental Property - Repairs or Improvements?

In order for a repair to a rental property to be tax deductible it must be classed as a repair as opposed to an improvement. An improvement is of a capital nature and will be depreciated over the life of the asset. The repair on the other hand may be deductible in the year in which the expense was incurred.

A repair is usually occasional and partial. Repairs typically replace a part of something or restore something to its original working order.A repair can become an improvement if it does not restore things to their original state (eg. replacing a metal roof with tiles).

While a repair simply restores something to its original state, an improvement makes something better than it was originally. It can involve bringing a thing or structure into a more valuable or desirable form, state or condition than a mere repair would do e.g. remodeling kitchens or bathrooms, or extending the size of a house.

But a change is not always an improvement. The ATO says the cost of removing carpets and polishing the existing floorboards is a deductible repair, yet underpinning due to subsidence is considered an improvement.

Did you know that if your rental property is vacant for a number of years, it may still be possible to claim the expenses associated with it as a tax deduction. Or, that if you are forced to sell an investment property and the debt is greater than the sale price; you may still be able to claim the interest on that debt despite the fact that you no longer have the property.

It is important to speak to one of our qualified tax experts when planning on purchasing, renovating or selling a rental property to ensure you get the maximum tax deduction you are entitled to.

 

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Finance Made Easy Pty Ltd is a corporate authorised representative of Custom Wealth Solutions Dealer Services Pty Ltd (AFSL 301642) PO Box 812, Hamilton Central QLD 4007
Anthony Bice is an Authorised Representative of Custom Wealth Solutions Dealer Services Pty Ltd (AFSL 301642) PO Box 812, Hamilton Central QLD 4007