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Repairs & Maintenance or Improvements?

Discussion in 'Accounting & Tax' started by smator, 16th Sep, 2016.

  1. smator

    smator Well-Known Member

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    Hey guys

    With a rental property which is in between tennants, trying to work out if some renovations completed by tradies would be R&M or if they're improvements and not deductible up front:

    1. Preparing and painting walls - last painted 25 years ago. Assume this is R&M?
    2. Ripping up 25 year old carpet and sanding floor boards underneath. Does this count as an improvement or can it be argued R&M as its fixing existing deterioration?

    Thanks!
     
  2. EN710

    EN710 Well-Known Member

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    Have you got an depreciation report?
    Carpet/ floorboard - I don't think it is a repair... same with painting.
     
  3. BMT Tax Depreciation

    BMT Tax Depreciation Chris Business Member

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    I concur with EN710, though I guess it depends on how creative you want your accountant to be. If a serious argument can be made for the paint (e.g., the walls are in complete disrepair) then maybe it is possible, but a new coat of paint is not generally a R&M claim. The wall isn't broken, it just looks bad.

    Removing the carpet and sanding the floorboards definitely isn't a R&M claim. In fact, replacing carpet with polished floorboards will give you less of a depreciation claim as well.
     
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  4. Azazel

    Azazel Well-Known Member

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    I'm guessing you would only get decent depreciation if you were putting down new floorboards?
     
  5. BMT Tax Depreciation

    BMT Tax Depreciation Chris Business Member

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    Hardwood floors in general are something to be avoided if you want to maximise depreciation. They're a capital works item, so even if you put down new floorboards your yearly deduction will only be the total cost divided by 40. Old hardwood (pre-1987) is ineligible altogether, and so sometimes your only depreciation claim will be the cost of fixing them up; i.e., pretty small.

    To maximise your deductions from flooring you need something "removable" like carpet, vinyl or floating timber.
     
  6. Azazel

    Azazel Well-Known Member

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    Right on.
    So not much point overcapitalising to do up old floorboards in an IP (rent increases aside)?
     
  7. EN710

    EN710 Well-Known Member

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    I usually do it if it is cheaper compared to entire floor change, i.e. no need to source material and get them installed.
     
  8. BMT Tax Depreciation

    BMT Tax Depreciation Chris Business Member

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    There may well be other reasons to do it but, no, a depreciation claim isn't one of them.
     
  9. smator

    smator Well-Known Member

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    Thanks for the answers
     
  10. Azazel

    Azazel Well-Known Member

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    Do you have a ballpark figure of the costs for an average small 3 bedroom house? Did you do any of it yourself?
     
  11. EN710

    EN710 Well-Known Member

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    Both IPs are far away, so all 3rd party. I think cost will depends on provider, but this is the cost for 2 IP

    IP1 NSW - small 3 bed
    Removal of carpet, underlay, vynil and masonite (not including disposal)
    Sand and polish all area
    Finish with water based satin coating
    $2,420 (incl. GST)
    Repair work in the bedroom $350 (replace 2x1m rotten wood due to leak from bathroom)


    IP2 QLD - small 3 bed low set
    Carpet removal - $330
    Sand and polish $1400
    Recoat kitchen and toilet $110
    --> About $1900


    Another quote I got for IP3 to replace carpet and change to vynil plank for hallway and living room only --> $1800. Recarpet instead of vynil is about $1000, but less durable.
     
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  12. Azazel

    Azazel Well-Known Member

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    Great, thanks for the information.
    That gives me a good idea of what the cost might be.
    Quite doable.
     
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