Some advice please.

[parkwood]

Hi folks,
I have a IP here in wgton and the tenants are moving out on the 9th nov,have just managed to get a 3 year lease with a Embassy but I need to recarpet 3 bedrooms and paint them which is going to cost about $5000,
As I only have a small mortage on the property could I just add that to existing mortage and claim it as interest or just depreciation.
Regards Paul.

[drelly]

If you have only just bought the property, you would need to capitalise it and depreciate.

If you have owned it for some time, and you're doing the work because of wear and tear, then you may expense it as repairs and maintenance.

If you borrow the money to do the work, I would think you'd be able to claim the interest either way. (I'm no accountant btw)

cheers,
Dave.

[parkwood]

Thanks for the reply drelly,
Yes I have had the property for quite a time and it is wear and tear and I dont mind paying out I just need to find out if I can claim the borrowings as interest.
Cheers Paul.

[roseneath_rat]

Paul, you can definitely claim interest costs for this in my opinion.

Just becomes a matter of whether you can claim it as repairs & maintenance (and thus expense the entire expenditure as a deduction on top of the interest cost) or capitalise it and just claim for the depreciation & interest.

In my opinion it would be considered a capital improvement, and depreciated as chattels. Even so you should still claim any interest costs incurred as an expense too.

Nice work getting an IP with an embassy for a tenant btw.

[parkwood]

Thanks for that RR,
Yes I was lucky getting an embassy (3 years) but being 4 bedrooms with 3 loos it was always easy to rent just needed a spruce up for them.
Funny thing was I was going to sell after xmas but the person who I brought off many years ago approach me a couple of weeks ago as she had embassy staff board on and off when she owned it and being stable tenants why not.
Cheers Paul.

[CJ]

My guess is:

interest deductible
Repairs deductible

Do you currently have a full chattels list that includes carpet? If so the other option is to take the loss on disposal on that and then list the new carpet as a new asset and depreciate.

[parkwood]

My guess is:

interest deductible
Repairs deductible

Do you currently have a full chattels list that includes carpet? If so the other option is to take the loss on disposal on that and then list the new carpet as a new asset and depreciate.

Thanks for that,I could do that as carpet is included in full chattels list,it's just seems to me to be a good idea to borrow all the money on the mortage then to use my own.
Cheers Paul.

[CJ]

If you have spare cash, best use that. If you have non deductible debt, pay that off with the spare cash and borrow on deductible cash.