What is the difference between property maintenance and repairs as investment property tax deductions? What qualifies as an improvement to an investment property?
What does ‘property maintenance’ mean?
Maintenance means work to prevent deterioration or fix existing deterioration.
Examples: painting an investment property or maintaining plumbing.
What do ‘repairs’ mean?
The repairs must directly relate to wear and tear or other damage that occurred as a result of leasing your investment property.
Examples: repairing an electrical appliance, replacing guttering damaged in a storm or replacing part of a fence.
What does ‘improvement’ mean?
An improvement generally furthers the income-producing ability or expected life of the investment property or changes the character of the item beyond just restoring the efficient function.
If you have to replace a separate item of capital equipment (such as a complete fence or building, a stove or a refrigerator) you have not carried out a repair or maintenance.
Assuming that an investment property is available for rent, you can claim an immediate tax deduction for repairs & maintenance on the investment property. Any improvements, on the other hand, will need to be capitalised and depreciated over the effective life of the asset. To find out more click here.
If the repairs, however, are incurred, before the investment property is available for rent, they are known as ‘initial repairs’. Generally, such repairs will not be tax deductible (but rather will form part of the cost base of the investment property).
If you find this a tad confusing or simply have a nagging tax question you want answered regarding your investment property, please contact us here. We would be happy to assist you.