Deductions on repairs/renovations on a PPOR soon to become IP

[Thrawn]

Deductions on repairs/renovations

I just purchased a property in Brisbane that I will live in for at least the 1st 6 months (for FHOG and CGT main residence exemption).

The property is built in the early 1980's (so no building depreciation on it). There's probably some improvements/works done to the property since then, but I can't really tell and have no documentation as to the date/cost of any improvements.

There are a number of repairs and renovation that I'd like to do on it. I believe the timing on when to do this can be critical as to what tax deductions can be claimed (eg, when its a PPOR, right before becoming an IP or after been an IP for 1 year, etc) .

Some examples of repairs I want to do
- Extensive gardening 'cleaning up', removal of weeds, tree lopping, etc
- Replacing guttering, decks and fencing. Pergola removal, house supports repairs
- Cleaning drainage, maybe some work in improving drainage
- Pest Control

Some examples of renovations
- Interior house repaint
- Recarpeting
- New bathrooms, kitchen and wardrobes

I guess some of the above items has to normally be depreciated and some is immediately deductible, also there may be tax advantages with disposal of the old decommissioned materials.

I would prefer to do as much as possible while its PPOR, to minimize complications and vacancies down the track. But if there's real tax benefits to wait on some items until the property is an IP, I will.

 

[depreciator]

Strictly speaking repairs are defined as 'restoring something to the condition it was in when you bought it'.
New gutterings, decks and fencing done while the property is your PPOR can be depreciated (2.5%) when the property becomes an IP - they're 'improvements'. Keep your receipts for your accountant.
A new kitchen, bathroom etc will likewise be 'improvements'
If you were to wait for the property to have been rented for a year or so, you might be able to claim some of the cost of painting and new carpets as 'repairs', but you need to be careful i.e. you can really only claim recompense for damage that may have been done while the property was rented out.
For you to take advantage of the 'disposal' provisions, you would have to have been renting the place out for a while.
This is not advice, but I suspect you will resolve to do as much work as possible while the property is your PPOR - it's certainly going to make things easier and the tax benefits of delaying some work vs the inconvenience may cancel eachother out. Hope that makes sense.
Scott

 

[Thrawn]

Makes perfect sense, Scott.

I have no real issues with effectively depreciating everything off slowly over the long run. I know that I have very little possible for a serious claim against 'repairs' for pretty much anything.

I understand that some things are not usually depreciated on an IP (eg, tree lopping) and instead claimed as an immediate expense/deduction. Or does tree lopping count as an 'improvement' akin to replacing carpets and thus will be depreciated off at 2.5% per year or whatever

 

[pulse]

Tree lopping would be maintenance once the place was rented out..... Just add it to a general gardening/lawn mowing invoice.

Cheers
Pulse

 

[geoffw]

There's the tax advantages of waiting to clean up.

But, from the items you've mentioned, I'd be looking a lot further than tax.

1. A lot of the things you want to do have the potential to add a lot to the value of your property. Once you've done them, if the property market hasn't moved against you, you would be able to borrow against an increased value. There's a lot of things which you could (time permitting) do yourself- especially the garden things- so you should be to add value without a huge cost. Even some of the inside stuff- say repainting- has the potential to add more value to the valuation than what it has cost- possibly (hopefully) a lot more. So don't just look at the tax savings aspect.

2. The things which add value can also add to the potential rent. Possibly a lot. (We've just relet a place which had had the same tenants for four years. The outside had not been looked after at all. The garden had been cleared up- but the cleanliness of the garden and yard was very bad. MrsW and myself spent a few hours just sweeping and general cleaning. That gave a hugely better first impression of the place, and probably gave an extra $20pw value to the place).

When you are looking at bathrooms, check out the possibility of reglazing baths, loos etc- say http://www.mendabathroom.com.au/ or similar- it can cost a lot less for a similar result.

As for kitchens- a lot of forumites have done successful flat pack kitchens at a big saving over a professionally done kitchen. Check out what they have done.

 

[Thrawn]

My understanding of the 'disposal' provisions is the following:

- Get a depreciation schedule for the property.

- Make the property an IP (basically, if you are able to claim mortgage interest expense as deduction, you would automatically be able to claim the depreciations and disposals as well)

- When you replace something (eg, carpets).. the old value of the remaining value to be depreciated for the old carpets can immediately be claimed in whole as deduction. In my case though since I probably can't determine the date for pretty much any new items since construction date, I won't be able to claim any remainder depreciation. Scott, how much leeway does a QS have in determining the "improvement date" without any documentation ?

As for gardening/tree lopping, my new garden looks a bit like messy bushland at the moment with it being unmaintained for a number of years by the previous tenants. There's ome big trees that is causing a lot of potential future issues (roots, leaves, safety). I had some quotes to just tidy up the garden and lopping some of the big trees and they come to around $5k, fairly major work.

I'd probably just do the general cleaning up while a PPOR myself and it'd make quite a difference to prospective tenants. For the major tree lopping work (nearly all of the $5k), I'd probably just wait a year before doing the work. $2k of tax deduction is a fair bit to miss out on.

I'd do the improvements on guttering, rainwater tank, drainage correction, fencing, kitchen, bathrooms, repainting, recarpeting, etc while its a PPOR as its deducted over long term anyways.

 

[depreciator]

When you replace something (eg, carpets).. the old value of the remaining value to be depreciated for the old carpets can immediately be claimed in whole as deduction.

Only if those items have not beeen in the Low Value Pool. The LVP is an option. If there items you are anticipating replacing, keep them out of the Pool.

Scott, how much leeway does a QS have in determining the "improvement date" without any documentation ?

In the absence of any documentation, a QS would be the person best qualified to estimate the date of improvements. With kitchen/laundry renos, date stamps on water heaters can give clues sometimes.

Scott

 

[bhuiyan]

renovation

HI

I bought
Some examples of renovations
- Interior house repaint
- Recarpeting
- New bathrooms, kitchen and wardrobes
Extensive gardening 'cleaning up', removal of weeds, tree lopping, etc
- Replacing guttering, decks and fencing. Pergola removal, house supports repairs
- Cleaning drainage, maybe some work in improving drainage
- Pest Control
zaman

 

[geoffw]

A suggestion for a bang for buck (apart from painting and recarpeting)/

Is there a carport, an open garage, or a lock up garage?

If it's NOT a LUG, you have an excellent scope for adding value.

(But check your local market).

 

[Haz]

To add a bit to the first post, i am in a similar situation to Thrawn. Though i am probably going to stay in my PPOR for a few more years. I've already owned for 4 years, and have done extensive work on the house. Inside and out. How long from the date of the work can i still claim it on tax when i decide to rent it out?

Thanks

 

[marg4000]

Haz, you can't claim deductions for any work done while it is a PPOR.

It's a bit of a grey area as to how soon after renting it out you can do repairs and claim them. Technically if the work was needed BEFORE it became an IP then it is not deductible apart from the building depreciation for structural work, e.g., new kitchen.
Marg

 

[Haz]

Hey Marg,
I realise some of the above posts are 2 years old, have things changed since those answers were posted? Because some of depreciators comments:

"Strictly speaking repairs are defined as 'restoring something to the condition it was in when you bought it'.
New gutterings, decks and fencing done while the property is your PPOR can be depreciated (2.5%) when the property becomes an IP - they're 'improvements'. Keep your receipts for your accountant.
A new kitchen, bathroom etc will likewise be 'improvements'"

Is this no longer the case?