Rental property and allowable costs against tax

Susie2017

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A question from a relative who has a 3 bed property rented for many years. In 2017 he did a big interior refurb, mostly done by a handyman who's final bill was about 20k a lot of that was labour including full interior paint with some supplies included in the 20k e.g wooden floor, replacement worktop, kitchen doors etc. Extra costs on top of this included tiles for kitchen, bathrooms and hall, new bath, sink units for bathrooms, paint, curtains, mattresses, electric shower, attic insulation, new toilets, dishwasher, light fittings, skip hire, etc etc. All in all the refurb costs came to around 32k. When the accountant looked at all the figures he only allowed just over 7k against the rental income for that year which was substantially lower anyway as the property was vacated for 5 months during its transformation. He noted this year on his tax return that only c. 200 euro is being allowed against tax for expenditure over the 8 year period. When he queried it the accountant said the remainder would be used against CGT when the property is sold. He is only starting to reflect on this now but is concerned that he should have gotten more written off at the time. He also feels it is unlikely that he will sell the property and will pass it on to one of his kids. Should he query this further ? Does it sound about right ? Sorry I dont have full breakdown of costs but the whole house was revamped internally without adding any extension.
 

Sarenco

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We had a fairly lengthy debate last year on this subject -
There are shades of grey on this topic but the assessment of your relative’s accountant doesn’t look obviously wrong.
 

Sarenco

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BTW where you see “************” on the linked thread, that’s the forum software blocking out the word “en_hancement”.

It’s an anti-spam device!
 
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Bronte

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Except for the dishwasher everything is repair/replacement. Clear as day to me. Take pictures. And get a better accountant.

I’d really love a detailed list of what the accountant put in the various categories.
 

Sarenco

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Except for the dishwasher everything is repair/replacement. Clear as day to me. Take pictures. And get a better accountant.
What a ridiculous comment!

How could you possibly know whether many of those expenses constitute repairs as opposed to improvements?

The accountant presumably has the full facts - you definitely don’t.

And in what universe do new curtains and mattresses constitute repairs!
 

moneymakeover

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I agree with Bronte. Entire amount should be tax deductable.
The goal of the refurb, as I understand it is to renovate the property.


Now if the purpose was to turn a 300k property into a 1m property that not allowed.
Eg I buy single unit. Add on 5 more units. Try to claim relief on the construction of 5 as rental relief.
From Revenue website,
Not Allowed:
capital expenses on property improvements unless allowed under an incentive scheme

But my understanding what the OP is describing is not so much improvement but renovation. Upkeep. Otherwise rented properties would become slums.
I think Revenue Commissioners and government want rented properties to be maintained. And thus the relief on refurbishment.
 

Susie2017

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Ok. So you guys basically think that most of this expense should have been allowed in 2017. Why did the accountant suggest leaving it til property sold ? Everything was renovation. Paint, flooring throughout. New kitchen doors and worktop. New bathrooms throughout. New electric shower. New carpets, beds mattresses, curtains, curtain poles etc. Is there any point in following it up at this stage ? Why would he have allowed so little? It seemed odd at the time but he uses this accountant every year. He thought about it again this year as accountant had forgotten to claim several years of tax relief on a income protection plan despite having been asked about it years ago. Is it possible to get a second opinion on that years return ?
 

Sarenco

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The goal of the refurb, as I understand it is to renovate the property.
The "goal" of the refurb is irrelevant.

What matters is whether the expenditure constitutes repairs/maintenance (which is deductible for income tax purposes) or whether the expenditure constitutes an improvement/en_hancement (which is deductible for CGT purposes).
Why did the accountant suggest leaving it til property sold ?
Because the accountant obviously took the view that a large proportion of the expenditure constituted capital improvement/en_hancement.

I'm afraid some other posters are offering you some pretty wild advice. It happens.

Your relative is paying his/her accountant for advice. Any advice offered on here is remote from the facts and there is no reason to believe that the accountant's advice is wrong on the basis of the limited facts that you have provided.
 

Susie2017

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I have read through the other thread linked above and it seems a controversial topic. The majority of the works would have been classified as renovations for wear and tear. I assume new kitchen appliances would be capital allowances. I suppose attic insulation or an electric shower in an ensuite would be an ***********. But those were small cost items in light of the overall expenditure. He has no recourse now anyway - I presume. Is the potential future CGT portion recorded somewhere with revenue or are you relying on the accountant to have the breakdown of costs on record 20 years down the road if he decides to sell up ?
 

Sarenco

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Is the potential future CGT portion recorded somewhere with revenue or are you relying on the accountant to have the breakdown of costs on record 20 years down the road if he decides to sell up ?
No, it’s up to your relative to keep receipts, etc.
 

Bronte

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What a ridiculous comment!

How could you possibly know whether many of those expenses constitute repairs as opposed to improvements?

The accountant presumably has the full facts - you definitely don’t.

And in what universe do new curtains and mattresses constitute repairs!
I know because been there done that. The mattesses and curtains are replacements. The only stuff I put under the 8 years deprecation are the likes of white goods, furniture. I've also a 100 euro limit. Anything under that I am not wasting my time, my accountants time and revenue's time with depreciating a 30 euro kettle over 8 years. When I get audited revenue can argue with me, like you do, on how bad a tax payer I am for not depreciating a set of 50 Euro curtains over 8 years.

Currently I have one property in major, and I mean major need of a refurb. I received a horrendous quote from a builder to do it, need to start from scratch as the tenants have 'let it go'. It costs way more as they would have to be in situ so I decided against it. When the tenants leave, of their own volition I'll do the refurb then. New kitchens, pull out the shower rooms, paint job, new electics, and with an eye on the new regulations. Sure that 'enhances' the property. In one sense. But in reality all I'm doing is putting it back to the position it was in when after buying it I did a major job (that I put against CGT)

Tell me Sarenco how did you decide a 50 Euro set of replacement curtains is 'improvements'?
 

Bronte

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I agree with Bronte. Entire amount should be tax deductable.
The goal of the refurb, as I understand it is to renovate the property.


Now if the purpose was to turn a 300k property into a 1m property that not allowed.
Eg I buy single unit. Add on 5 more units. Try to claim relief on the construction of 5 as rental relief.
From Revenue website,
Not Allowed:
capital expenses on property improvements unless allowed under an incentive scheme

But my understanding what the OP is describing is not so much improvement but renovation. Upkeep. Otherwise rented properties would become slums.
I think Revenue Commissioners and government want rented properties to be maintained. And thus the relief on refurbishment.
Exactly MMO. That's why when I first bought a propety for x, put in y to bring it to value z, that's ***********. Clearly CGT. Couldn't see any other way of viewing it. But later, as you do, you have to replace/renew/renovate, that's not ***********. It's renovation. Us landlords are doing this constantly. Sometimes it's just a paint job, a replacment boiler, a new electic shower, but other times it's a major renovation. Which is what the OP has because she said it had been rented for 'many years'.
 

Bronte

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Ok. So you guys basically think that most of this expense should have been allowed in 2017. Why did the accountant suggest leaving it til property sold ? Everything was renovation. Paint, flooring throughout. New kitchen doors and worktop. New bathrooms throughout. New electric shower. New carpets, beds mattresses, curtains, curtain poles etc. Is there any point in following it up at this stage ? Why would he have allowed so little? It seemed odd at the time but he uses this accountant every year. He thought about it again this year as accountant had forgotten to claim several years of tax relief on a income protection plan despite having been asked about it years ago. Is it possible to get a second opinion on that years return ?
As I already said to you, you friend needs a better accountant. Especially now you've told us about him forgetting to claim something ! Like there's alarm bells twice now. Anyone can forget something, it happens to the best of us, but 'several years'. Do you know how much the accountant is paid?
 

Bronte

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I have read through the other thread linked above and it seems a controversial topic. The majority of the works would have been classified as renovations for wear and tear. I assume new kitchen appliances would be capital allowances. I suppose attic insulation or an electric shower in an ensuite would be an ***********. But those were small cost items in light of the overall expenditure. He has no recourse now anyway - I presume. Is the potential future CGT portion recorded somewhere with revenue or are you relying on the accountant to have the breakdown of costs on record 20 years down the road if he decides to sell up ?
There is a revenue expert on the other thread. Mandelbrot.

You keep receipts for 6 years according to revenue. Me, I keep receipts forever. But I do an excel so I have a summary. I can't be remembering what *********** or refurb I did 2 years ago never mind 20 years ago. In my case 20+ years ago.
 

Sarenco

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@Bronte

Capital allowances can be claimed on the cost of furniture and fittings in a property. That would include curtains, mattresses, white goods, etc.

The cost of replacing these items is not deductible as a repair (whatever about your personal "rules").

Your advice on this thread is wild because it is offered without having all the facts. You can't state definitively that a particular expense relates to a repair, as opposed to an en_hancement, without having all the facts.
 
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