Our last tenant wrote the carpet off. It was fairly old to begin with, but serviceable. Seems they had dogs & cats that were not passed by us first and the constant animal pee throughout the house saw off the carpets. The tenant has agreed to relinquish the bond toward the carpet. The cost to replace the carpet was roughly double the bond amount. Now, my understanding is the carpet must be depreciated over the next x years but the bond payout would be assessed in full as income? Seems a bit unfair that I would pay tax on the whole bond amount, (which is 100% going toward the carpet costs), yet can only claim the carpet in dribs and drabs over the next decade? Or, as the bond was for the carpet, am I able to deduct the bond from the carpet costs first, then depreciate the balance of the carpet instead? I.e. lets say bond was $1000 and carpet costs $2500, do I:- 1 - Show the $1000 bond as income on my return and be taxed accordingly, then depreciate the carpet at $2500 or 2 - Not show the bond as income, take it off the cost of the carpet and depreciate the carpet cost balance of $1500 Cheers.