Rental repairs versus improvements
When it comes to a rental property there’s a difference between repairs and improvements, and it’s a distinction that matters for owners come tax time.
It’s also a grey area that’s a little confusing, so with that in mind, here’s our quick guide to rental repairs versus improvements.
Repairs and maintenance
Repairs and maintenance are par for the course when you own a rental property.
Considered a usual expense, they involve fixing something that might be broken or maintaining something as a preventative measure.
They differ from improvements as they’re often about ensuring the property remains in its original condition.
So, for example, repairs might constitute:
- Fixing a leaking tap
- Repairing a fence due to storm damage
- Replacing a broken piece of decking that’s deteriorated due to wood rot
Meanwhile, as we mentioned, maintenance is about preventing the deterioration of a property, and might include:
- Cleaning the gutters regularly
- Having a deck oiled
- Cutting back overhanging trees
None of the above tasks necessarily add value to the property. Instead, they ensure it remains in its original condition, and they can be claimed as an expense by owners at tax time.
Improvements
Improvements, on the other hand, add value to the property. They might make it more appealing to renters in the future, or perhaps allow the property to command a higher price when it comes time to sell.
Typical examples of capital improvements in a rental property might include:
- Renovating the kitchen
- Replacing a roof
- Installing new flooring
- Adding a fence, carport or new driveway
In addition to projects which add value to a property, there are also elements which can make the property more appealing that are known as depreciating assets.
These tend to be things which aren’t actually part of the building but can be installed and removed, such as white goods, including dishwashers, ovens, and refrigerators, or fixtures like carpets, curtains and blinds.
These items also tend to have a short lifespan, meaning they’ll need to be replaced every now and then.
And when it comes to claiming expenses for items that improve your rental property, they are handled differently to repairs.
Improvement costs will need to be claimed back over a number of years, rather than all at once.
Seek an expert opinion
While the above is a general guide to the subtle difference between repairs and improvements, as a rental owner, you might want to consult your accountant or tax agent about how each of these expenses can be claimed.
They’re best positioned to advise on what should be claimed, when, along with the formulas that need to be applied.
How we can help
Our experienced property managers pride themselves on establishing great relationships with both rental occupiers and owners.
We manage every property as if it were our own and you can learn more about our property management services here.
Alternatively, if you are looking to rent a property, you can view the properties we currently have available here.
