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Investment Property Tax Deductions – Repairs and maintenance or capital improvements?
Concerns about the cost of repairs and ongoing maintenance for an owner’s investment property can be reduced by claiming back these costs when an investor is completing their tax return. Before an investor can start to tally deductions, it is necessary to understand the difference between claiming repairs, maintenance and capital improvements.
Repairs and maintenance
Work completed to fix damage or deterioration of a property is defined as repairs, e.g. fixing part of a damaged fence.
Work completed to prevent deterioration to a property is defined as maintenance, e.g. servicing an air conditioner.
A deduction for expenses incurred because of repairs or maintenance on an investment property can be claimed completely within the current financial year.
Improving the condition or value of an item beyond its original state at the time of purchase is defined as capital improvements. Capital improvements must be depreciated or claimed as capital
works deductions over time. Capital improvements are classified as either capital works deductions or plant and equipment. Capital works deductions include structural additions and renovations such as adding and extending an internal wall and also includes items fixed to the property which cannot easily be removed. Plant and equipment items include removable or mechanical items such as carpet, hot water systems and stoves.
To determine how expenses on an investment property should be claimed, an investor can consider the following questions:
Has the property or item been improved beyond its original condition at the time of purchase?
If an item provides something new or changes the character of the original item in any way, it will be considered a capital improvement.
Was the asset partially replaced, or replaced entirely?
Partially replacing an item due to damage or wear and tear is classified as repairs and maintenance. If an owner decides to replace the entire item to improve the property’s value, it will be considered a capital improvement.
A BMT Tax Depreciation Schedule will only include items classified as capital improvements. Repairs and maintenance can be separately claimed as a 100% deduction with an accountant when an investor is completing their tax return.
BMT can answer questions about alterations, additions, repairs or improvements and the implications they may have on depreciation.
Article provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is the Managing Director of BMT Tax Depreciation.
This information is provided as a guide only and is not intended to constitute professional advice. You should obtain appropriate advice concerning your particular circumstances.
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