Repair or improvement on your investment property?
Expenses that relate to repairs and maintenance of a rental property will usually be deductible when they are incurred, but any work that is considered an improvement, such as installing a new kitchen, will not be deductible and instead deemed to be a capital item that may be subject to depreciation.
There are a few important points to consider:
- A repair is the replacement or renewal of a worn out or dilapidated part of something, but not the entirety. For example, if some part of the carpet needs to be replaced that would be a repair, but if you replaced the entire carpet throughout the house, that would be an improvement and not immediately deductible (but may be depreciable).
- An item of expenditure is considered to be a repair when it brings something back to its operational efficiency, but does not significantly improve it. For example, a few light fittings may need replacing. Normally this would be considered a repair, but if you put in expensive chandeliers, it would be considered an improvement and not a repair.
- Initial repairs after you buy a property will often be considered capital improvements. The courts consider that these repairs would have been factored into the purchase price and therefore are considered capital in nature.