Tax query for an IP

Hi Everyone,

We recently purchased an IP and we need to perform some renovation in order to make the house prepared for renting. some of the renovation jobs are actually fixing of the issues like the fence (which needs to be fixed) and bathroom area (tiles are loose and not safe), also painting and we need to arrange for cleaning.
I was wondering if we can claim these expenses if we keep receipts and tax invoices.

If not, can we still claim loan repayments in our tax return for the duration that house is under renovation to make it ready for tenants, it might take 1 month or six weeks before we can take photos for rental advertisement?
Obviously, if the house was in a good condition we did not want to spend a dollar before rent it.

Thank you,

 

No, these renovation expenses are not tax deductible, but can be added to the cost when calculating CGT.
Marg

 

Thank you Marg,
How about the loan repayments for the duration that house is under renovation and not tenanted?
The renovation will take 4 to 6 weeks because we get close to end of the year and all tradies are super busy. cheers

 

You can't claim loan repayments, but might be able to claim the interest on the loan.

 

Thank you for your reply, my loan is interest only so I am not going to pay any principals. so then I should be able to claim interests as part of my expenses.

 

Check with your accountant.
Marg

 

All borrowers should only consider DEBITS in their loan statements as potentially deductible. It is the amount charged for interest and fees. Credit amounts (actual repayments) should be disregarded whether loan is P&I or IO or anything else. For a IO loan the two may be the same. Otherwise they never will.

This issue is like asking whether you claim a deduction for the $400 paid to the accountant for their fees paid on a credit card or the $1,000 paid to pay the card that same month.

 

The ATO call this sort of work Initial Repairs. You can't expense it, but you can claim it at 2.5%pa. From the ATOs perspective, what you are doing is 'improving' the property. If that damage had occurred while you were renting out the property, you could deduct the cost to fix it.
Scott

 

You will likely be able to claim the interest paid on the loan while getting it ready to rent.

The initial repairs are likely to be capital in nature and qualify for the 2.5% building allowance.

The costs of setting up the IO loan are also likely to be deductible over 5 years: even while it is being renovated.