Are you planning to upgrade your property, or some parts of it? Did you know that you can deduct some of these costs? That’s right! You just need to know the best way to do it.


Firstly, it’s important to know the difference between an improvement and a repair to your investment property to determine whether the work completed is a deductible expense, or capital nature. Repairs can be written off immediately while an improvement may be written off over a longer period through depreciation. The amount of depreciation you can deduct per year varies depending on whether your property is commercial/residential and what the asset is.


To repair means to renew parts or fix defects, excluding total reconstruction. It also allows the property to be used in its current state. An improvement, on the other hand, provides a greater function to the property and makes it more desirable or valuable compared to repair. The improvement often extends the property’s income-producing ability and enhances its market value.


A renovator should focus on value instead of just tax because an improvement should increase rent and market value, which will be compounded over time.


You may also need to look at the size and frequency of the project to know whether it is a renovation expense – like replacing kitchen cupboards one at a time. If you replace all carpets and gutters at once, it is considered an improvement and could be depreciated. Note that different rates apply based on useful life, and whether the property is commercial or residential.


If you complete a repair before your property is first rented, the costs are considered an improvement because the purchase price will have taken into account the disrepair.


Improvements vs Repairs and Maintenance is a difficult topic (and the answer isn’t always black and white), so give us a buzz if you have any questions on anything mentioned above.



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