Are rental property repairs tax deductible?
There will likely be a few times over the course of owning an investment property that you will need to pay for some repairs. Fortunately, this cost can be offset by some great tax benefits investment property owners can have up their sleeve. These tax benefits can help ease the costs of repairs you may face, helping you keep your property in order.
With the end of financial year fast approaching, it’s a great time to review the tax benefits you may be able to utilise.
The difference between a repair and an improvement
When it comes to tax claims repairs and improvements are each treated differently. These differences are important to learn in order to avoid overcomplicating your tax return. Let’s go over repairs and improvements, and their tax differences.
The ATO’s definition of a repair is restoring something to its original state. This means taking a broken object and returning it to exactly how it was prior to it breaking. For example, if a window is broken and you repaired it using the same materials and glass that were used previously, that would be a repair. However, if you turned the frame from wood to metal, or added a double pane of glass to what was previously a single pane, that would be an improvement.
Repairs are tax-deductible provided you meet the right criteria.
Common repairs could be cleaning stained carpets, plastering damaged walls, fixing garage doors, and repairing appliances. However, it is important to note that if a damaged appliance is replaced by a new appliance, this isn’t considered a repair, similarly with other items within the property.
An improvement is handled differently by the ATO. This is because an improvement can make your property more valuable and increase its desirability. Any upgrade you make to an item, such as repairing it with higher quality materials, will count as an improvement. In this case, you have changed the nature of the item, providing it with an upgrade.
So, replacing broken air conditioning with a newer more efficient model will likely not count as a repair, instead, it would be considered an improvement.
Fortunately, with improvements, you can still reduce your tax in the long term. This can be achieved by claiming depreciation on the wear and tear of features in your property. Plus, the costs of major renovation can have capital works deductions claimed over a few years.
Is maintenance on rental properties tax deductible?
Maintenance is unique to repairing. It involves work carried out that is designed to prevent future damage. This keeps the property in great condition. Maintenance can include routine gardening, plumbing, cleaning, repainting, re-oiling wooden decks, and much more. Generally, maintenance is tax-deductible and can be claimed as Repair and Maintenance on your rental schedule.
Other expenses you may be able to claim for your rental property
There are a few other expenses that you may be able to claim an immediate deduction for. You should always check with your accountant before trying to claim any deductions to ensure you are eligible. Expenses you potentially could claim a deduction on include:
- Advertising to find tenants
- Body corporate fees and charges
- Council rates
- Water charges
- Land tax
- Pest control
- Interest expenses
- Property manager fees and commission
- Some legal expenses
There are many great options for property investors to reduce their taxable income and receive some, or most of their money back from repairs. Depreciation deductions are also potentially significant if you are looking to make an improvement. However, it is important that you always talk to an accountant before taking any action regarding taxation. An accountant will be able to assist in creating an optimised tax strategy for your investment portfolio.
If you need more advice on your rental property have a chat with Link Living.