Rental Income Deductions 12.5% for wear and tear?

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portstorm

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Hi,

Does anyone have a comprehensive list of what you can/can't deduct @ 12.5% for 8 years? The Revenue leaflets are quite vague.

What if people put in this thread what they have claimed for/been told by Revenue is deductible it would be very useful for people doing their returns?

I've read that central heating is deductible but how do you value your central heating system?

Also the likes of garden stuff - decking, shed, fencing, gates...is this all deductible?
If you leave a lawnmower/tools for the tenant to cut the grass, is this deductible?
 
On that other thread I would disagree on the advice to write off the original cost of the 3 piece suite over 5 years at it's original cost as it had been purchased 3 years prior to renting. Better to write off the value of the 3 piece suite over 8 years when you start to rent.
 
Bronte said:
On that other thread I would disagree on the advice to write off the original cost of the 3 piece suite over 5 years at it's original cost as it had been purchased 3 years prior to renting. Better to write off the value of the 3 piece suite over 8 years when you start to rent.
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I disagree with your disagreement...! ;) (taken from Notes for Guidance - TCA 1997 - Finance Act 2009 Edition - Part 9 - S.287)


"Principles on which normal wear and tear allowance is to be calculated
[FONT=Times New Roman,Times New Roman][FONT=Times New Roman,Times New Roman]The normal wear and tear allowance for a chargeable period is to be calculated on the basis that — [/FONT][/FONT]
(3) ​
[FONT=Times New Roman,Times New Roman][FONT=Times New Roman,Times New Roman]• the trade had been carried on by the person concerned ever since that person acquired the machinery or plant in such circumstances that the full amount of the profits or gains of the trade were chargeable to tax, [/FONT][/FONT]
[FONT=Times New Roman,Times New Roman][FONT=Times New Roman,Times New Roman]....[/FONT][/FONT]
[FONT=Times New Roman,Times New Roman][FONT=Times New Roman,Times New Roman]• since its acquisition by the person concerned the machinery or plant had been used by that person solely for the purposes of the trade,"[/FONT][/FONT]


The upshot of which is that all assets have a tax-life defined in the legislation (usually 8 years), and the clock starts ticking from when the asset is acquired, not from when it is put into use in a taxable activity.

So, in the case of a 3-year old suite of furniture, the opening tax written down value is 62.5% of whatever it cost, and the wear & tear to be claimed is 12.5% of cost each year over the remaining 5 years.
 
mandelbrot said:
"Principles on which normal wear and tear allowance is to be calculated
[FONT=Times New Roman,Times New Roman][FONT=Times New Roman,Times New Roman]The normal wear and tear allowance for a chargeable period is to be calculated on the basis that — [/FONT][/FONT]
(3) ​
[FONT=Times New Roman,Times New Roman][FONT=Times New Roman,Times New Roman]• the trade had been carried on by the person concerned ever since that person acquired the machinery or plant in such circumstances that the full amount of the profits or gains of the trade were chargeable to tax, [/FONT][/FONT]
[FONT=Times New Roman,Times New Roman][FONT=Times New Roman,Times New Roman]....[/FONT][/FONT]
[FONT=Times New Roman,Times New Roman][FONT=Times New Roman,Times New Roman]• since its acquisition by the person concerned the machinery or plant had been used by that person solely for the purposes of the trade,"[/FONT][/FONT]
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But the suite doesn't fulfil the criteria of either of the sentences you quoted - ie the trade wasn't carried on ever since they acquired the suite nor has it been used solely for the purposes of the trade" so

I agree that the suite should be written off over 8 years from the date of use in the rental property

If it's disposed/replaced before the end of the 8 years then you get a balancing allowance
 
mandelbrot said:
The upshot of which is that all assets have a tax-life defined in the legislation (usually 8 years), and the clock starts ticking from when the asset is acquired, not from when it is put into use in a taxable activity.
Click to expand...

If you buy a 2nd-hand piece of equipment, you have to write it off over 8 years from the date that you bought it, not the original date of acquisition by the original owner
 
DB74 said:
But the suite doesn't fulfil the criteria of either of the sentences you quoted - ie the trade wasn't carried on ever since they acquired the suite nor has it been used solely for the purposes of the trade" so

I agree that the suite should be written off over 8 years from the date of use in the rental property

If it's disposed/replaced before the end of the 8 years then you get a balancing allowance
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I don't think that you're reading the part I've quoted quite correctly, and I was quoting from the guide rather than the Act itself, but what the bit I've quoted means, is that wear & tear is calculated AS IF the asset had been in taxable use for the entire period since acquired.

This might give more context (again, from the Notes for Guidance):

"Summary ​
The purpose of [FONT=Times New Roman,Times New Roman][FONT=Times New Roman,Times New Roman]section 287 [/FONT][/FONT]is to enable the amount of the wear and tear allowance to be made for a chargeable period in respect of machinery or plant to be determined on the basis of the true written-down value of the machinery or plant. Thus, the section applies for the purposes of calculating the written-down value at the commencement of the chargeable period of motor vehicles ([FONT=Times New Roman,Times New Roman][FONT=Times New Roman,Times New Roman]section 284(3)[/FONT][/FONT]) and applying the overall limit on the amount of wear and tear allowances that may be made in respect of machinery or plant generally ([FONT=Times New Roman,Times New Roman][FONT=Times New Roman,Times New Roman]sec-tion 284(4)[/FONT][/FONT]). For those purposes, normal wear and tear allowances are deemed to have been made in respect of machinery or plant used during any chargeable period in circumstances in which it attracted no wear and tear allowance or a restricted wear and tear allowance."

DB74 said:
If you buy a 2nd-hand piece of equipment, you have to write it off over 8 years from the date that you bought it, not the original date of acquisition by the original owner
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As regards second hand assets, the person who sold it to you, if it was also a capital asset in their hands, will have done a balancing allowance / charge, so that the amount that you have paid is an amount that writing down allowance hasn't yet been claimed. And the writing down period becomes 8 years from when you acquire it.
 
This is making things way too complicated and confusing for landlords. I think it's revenue's tried and tested practice to accept wear and tear as I've outlined.

If we start analysing legislation there will be no end to complications and interpretations.
 
mandelbrot said:
As regards second hand assets, the person who sold it to you, if it was also a capital asset in their hands, will have done a balancing allowance / charge, so that the amount that you have paid is an amount that writing down allowance hasn't yet been claimed. And the writing down period becomes 8 years from when you acquire it.
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But that's not necessarily the case.

Suppose a company buys a car from a non-business entity. The company then claims Capital Allowances over an 8-year period from the date they bought the car and based on the price that they paid for the car, not the Original Market Value of the car or the original registration date of the car.

It's exactly the same scenario here as regards the furniture.

And as Bronte says, Revenue' interpretation and treatment of the scenario is different to yours so you are really only inviting trouble by advising otherwise. At the very least you should state that Revenue's opinion is different to yours because Revenue will deem that person to have overclaimed Capital Allowances and charge them interest.
 
mandelbrot said:
"Summary ​
The purpose of [FONT=Times New Roman,Times New Roman][FONT=Times New Roman,Times New Roman]section 287 [/FONT][/FONT]is to enable the amount of the wear and tear allowance to be made for a chargeable period in respect of machinery or plant to be determined on the basis of the true written-down value of the machinery or plant.
Click to expand...


This sentence actually contradicts your view

It states that the W&T allowance is to be determined on the basis of the deemed WDV of the asset and NOT on the basis of the original cost of the asset.
 
DB74 said:
But that's not necessarily the case.

Suppose a company buys a car from a non-business entity. The company then claims Capital Allowances over an 8-year period from the date they bought the car and based on the price that they paid for the car, not the Original Market Value of the car or the original registration date of the car.

It's exactly the same scenario here as regards the furniture.

And as Bronte says, Revenue' interpretation and treatment of the scenario is different to yours so you are really only inviting trouble by advising otherwise. At the very least you should state that Revenue's opinion is different to yours because Revenue will deem that person to have overclaimed Capital Allowances and charge them interest.
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I think you're misunderstanding what I'm saying. I fully agree with the scenario you just gave about a second hand car, no problems.

What the OP was asking about is a scenario where they bought a suite of furniture 3 years ago, and are only now starting to use it as a capital asset for their rental property (prior to this it was presumably sitting in the OPs living room or whatever). In this case, the OP bought the suite 3 years ago, so 3/8ths of the tax life of the asset in their hands has now expired, and for wear & tear purposes there will be deemed to be 3 years wear & tear already claimed on the asset, with 5 years left to be claimed, at 12.5% of the cost (not necessarily the original cost of the item if it's second hand, but the amount that the person making the claim actually paid).

If you stand back and think about it, its the only logical way to calculate it - if the OP buys a suite of furniture, keeps it in their house for 10 years til it's good and ratty, then chucks it into their rental property, then even though under normal rules it would have been written down fully, your method suggests that the entire cost of the suite can now be written off over the ensuing 8 years... that would be a bit unfair, seeing as the bulk of the value of the asset has already been enjoyed by the OP in their personal capacity. My method, and I assure you the legislation and Revenue's opinion agree with me, is to say that there is nothing left to be written off.
 
I dont thisk DB74 is suggesting you write it off on its original cost but at its value when you commenced renting
purchased for for 1500 5 years before renting - worth 800 when renting commences
claim 100 per year for next 8 years
thats what i would do and that is my interpretation of revenues guidelines (rightly or wrongly :) )
 
DB74 said:
This sentence actually contradicts your view

It states that the W&T allowance is to be determined on the basis of the deemed WDV of the asset and NOT on the basis of the original cost of the asset.
Click to expand...

It doesn't contradict me at all.

Ask yourself what is the "deemed" WDV of an item - it's the WDV you get when you apply a notional wear & tear allowance i.e. a wear & tear allowance that wasn't actually given because the asset, whilst owned, wasn't put to a taxable use in a chargeable period.

What that sentence is telling you is that the amount of wear & tear allowance claimed can't exceed the notional WDV. so if the item is 7 years old, and used personally for all those years, then it's opening WDV when diverted to a taxable use, is deemed to be 12.5% of what you paid for it, the other 87.5% being deemed to have been already claimed as W&T. So you can only claim 1 year's W&T on it, as any more than that would reduce the deemed WDV below zero.
 
WindUp said:
I dont thisk DB74 is suggesting you write it off on its original cost but at its value when you commenced renting
purchased for for 1500 5 years before renting - worth 800 when renting commences
claim 100 per year for next 8 years
thats what i would do and that is my interpretation of revenues guidelines (rightly or wrongly :) )
Click to expand...

That's fine, and I doubt there's an auditor in the country who'll actually split hairs over it, I know I wouldn't... But I started off advising what I believed to be the correct way to do the thing, and I've been challenged on it, so I'm now having to defend my position! :D
 
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