Can someone pls explain to me about when reno’s &/or repairs should be done in an IP? I believe i read that if it is done between leases,when the property is vacant,that i cant claim these expenses.Is this correct? If so,why?
When do others do their repairs?[confused2]Hey Misty
As long as the property remains an IP you can claim the renos. Whether they are a capital deduction and therefore claimable as a deduction on sale or “repairs” and claimable now is a matter for your accountant.
As far as when to do it goes, it is always a good idea to keep the place in reasonable repair all the time but if you have a vacancy and want to try and increase the rent with some major renos, the time to do it is when its vacant otherwise you have to get the ok from the tenant and maybe reduce the rent for the inconvenience.
Happy hunting
m
Hi,
I’ll try to answer this from two perspectives:
1. Investing Theory
You only undertake a reno when you add more in perceived value than actual cost.
2. Tax implications
While you need to get specific advice for the circumstance, my general tax knowledge (i.e. what I haven’t yet erased!) is that there needs to be a nexus between earning income and the repair.
As such, repairs done soon after buying are usually deemed part of the cost of the property, yet repairs done ‘in-between’ tenants should be deductible – either outright or else via depreciation.
So, to answer your question… provided the cost relates to earning assessable income, then depending on the timing it will either need to be:
A. Capitalised (i.e. added into the price of the asset) and then, depending on the item, potentially depreciated; or else
B. Claimed as a deduction.
Hope this helps. If you want to read further info, then the ATO website that talks about this issue is a good source. Click here for the link (and scroll towards the bottom of the page for the heading ‘repairs’).
Bye,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Misty,
At the expense of repeating this answer, which you have asked before. As the property is an investment, the reno/repair can and is claimable in one of either two forms:
1. As a capital expenditure calculated as part of the cost base should you ever sell the property.
2. As an immediate deductible claim,if the work is done between tenants.
Either way, you get to CLAIM money spent, it is just a matter of whether you can do so now, or later on when you dispose of the asset.
Too easy!!!
Jo
We have just purchased our first IP just six weeks ago.We are in the process of renovating it prior to putting tenants in ..We have painted throughout, complete new bathroom, new – (well excellent secondhand kitchen), carpets cleaned, garden done etc..We are doing it all now to build up the equity so we can buy another IP ASAP…Being very new to this and on a very limited income and doing all the work ourselves I hope this is the right way for us ????
Wanting MoreWanting more,
Making improvements is always a good thing to do, as it adds value and helps increase returns. Furthermore, if you can do it yourself and save some $$$ all the better.
You are doing the right thing, but from what you have described, I would expect that the ATO will view all the new items and your hard work as CAPITAL EXPENDITURE which will be calculated as part of the cost base when and/if you ever sell the IP.
All in all, well done!!!
Jo
Hi,
Sorry – didn’t know that Jo was also posting so apologies for the repeating…
If that is your strategy then keep going, and learning, as experience is the best teacher.
Just two points to note:
1. Be sure to add more in perceived value than actual cost. Sometimes the line can be blury, but if you lose perspective then it’s easy to lose money.
For example, on one early reno project I did I added a lot of fluff under the pretext of making the house more homely (such as coat hooks). In hindsight I think I lost sight of what added value and what was an unnecessary extra. I think finding the line comes from experience.
2. It’s more likely that a large portion your works will not be immediately deductibe, but rather need to be capitalised into the cost of your property. Just be careful of this as if you are relying on a big tax refund to fund ongoing works then you may be caught short.
Warm regards,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Originally posted by wanting more:We have just purchased our first IP just six weeks ago. We have painted throughout, complete new bathroom, new – (well excellent secondhand kitchen), carpets cleaned, garden done etc..We are doing it all now to build up the equity so we can buy another IP ASAP…Being very new to this and on a very limited income and doing all the work ourselves I hope this is the right way for us ????
Hi Wanting More
My tip is a trip to your local bookstore. Ask them to get Peter Spann’s book “$10 Million Property Portfolio in 10 years” My local Angus and Robertson had to get it out of their storeroom.
Spann is brilliant at doing renos, plus explaining the philosophy behind it. I LOVED his chapter on how to use readily available Median price and average rental income data to decide:
1. Precisely which suburbs to buy in
2. The precise point in the cycle to buy in which suburbs and WHY.The maths is dead easy, and warrants learning by heart. I’ve even refined it into my personal little mnemonic. I call it my “212” trick. You’ll work it out once you’ve read Spann. Remember: 212
So my basic tip is to keep forging ahead, doing more and more reading. Don’t begrudge spending a bit of money to buy the statistical data. It’ll pay off bigtime after Spann’s taught you how to read and APPLY it (ie., KNOWLEDGE APPLIED). Very, very well done. Now all you need is a proven, practical investing philosophy to inform and accelerate your future investments.
Cheers
GregThanks everyone for your encouragement, i really appreciate it and your comments.
I have purchased both of Steve’s books and only yesterday managed to get hold of Peter Spann’s book.I have read Jan’s books as well in the past.
Steve said “It’s more likely that a large portion your works will not be immediately deductibe, but rather need to be capitalised into the cost of your property. Just be careful of this as if you are relying on a big tax refund to fund ongoing works then you may be caught short”
Thanks Steve, as yet we do not have a tax problem as we are not working. We are on a full pension due to a disability and I am on a carer’s pension. We have been able to fund the home through the equity in our PPOR. Hope to have a tax problem one day though
and be able to get around it.Steve I wonder if you could do a “special topic or thoughts” for people who are living on pensions or on very low incomes?? I Don’t mind giving you some personal details to help with it.. Just a thought…..
cheers and thanks Wanting More
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