Repairs, Maintenance or Improvements?
This is a question that has risen many times among all types of investors “I am confused about repairs, maintenance, and improvements? How do I know what the best deduction will be for me”
Investing in property requires work from the buyers, not just the accountant because it affects your tax deductibility . After all, it’s you that ends up signing the lodgement and the tax department to eventually audit
Most investors primary focus is on rental returns and capital gains. But it’s the smaller things that can add up very quickly so it’s a good idea to keep a record of every item your purchase no matter if it’s old, or brand new. Now we don’t want to confuse the issue here. So let’s look at the three definitions a little more closely and hopefully understand things a little better.
A repair is should be very easy to determine. Like if you were to repair your mobile phone like I just had done with my wonderful friends in Adelaide. The definition of a repair is to partially restore something back to its original state
Maintenance , however, is ongoing work that ensures it will continue to perform the way its was meant to from the day it was applied. probably the most obvious example would be to repaint the exterior or interior of the investment property
An Improvement is to make something that was functional but to enhance its performance . This is where it can get a little sticky as you may want to compare this closely to repairs. They key point to remember here is that in most cases repairing is applied when its is required to be fixed where an improvement is enhancing something that was already serving its purpose. Confused ? I can certainly understand why.
When it comes to that wonderful time of year and we need to lodge our tax returns, it’s a wise move to have your investments property invoices, bank statements and lease statements all in a separate folder. You will find it much easier to work out what the costs were and how much rent you received. Its will also reduce your accounting fees as it makes life much easier for the accountant to audit when it’s all place nicely for them to check.
Just keep in mind that repairs and maintenance are direct costs so you should be able to claim them straight away. You obviously to discuss this closely with your accountant.
Improvements are simply enhancing the property or not something that was life threating or required to be done at a certain date. Although you should be able to claim the improvement costs, it’s more likely you would do this when you sold the property and use it to reduce the capital gains you may have made.
Now before you run off and quote me on all the above, I would like to reiterate that I am not an accountant or have any qualifications to advise you on this. I can only give you these examples based on the investment properties I have had and based on the current tax laws. Policies can change very quickly and when its time to do your tax, some of the information being discussed may be different.
Always get the proper legal and tax deduction advice from your qualified accountant and that relates to your personal situation. We are all different people.