Tax on rental income - what expenditures can be off-set against the income??

[Shane D]

Dear PTers

Can someone please explain to me what expenses can be off-set against rental income when doing a tax return?

Can the following expenditures be off-set??
- Property management fees
- improvements such as new fences, new letterboxes, new clothes-lines
- maintanence carried out by tradesmen
- house insurance

Please add to the list if you think of other expenditures that can be off-set.

Thanks in advance.

Shane D

[spaceman]

Generally speaking....

.... any costs incurred in producing income can be claimed.

Some things need to expensed and others need to be capitalised and then depreciated..... Repairs can be expensed, improvements must be capitalised.... it can be a very grey area deciding if an item is a repair or an improvement.

A letterbox most times would be a repair..... but what if there wasn't really much wrong with the originall and the new one somehow increased the value of the property?

so for your list I would say:

Yes
Maybe... depends replacing a fence with an identical one or is the new one better somehow??
Yes ....as long as it is maintanence not improvements
Yes


Cheers
Spaceman

[spurner]

I think if the improvement is less than $500 then it can be expensed rather than capitalised and depreciated?

Assuming that is the case, I've always thought about the possibility of breaking up a $1000 improvement into 2 x $500 amounts and then claiming as a deduction?

ie You buy floor tiles for $400, then a week later buy wall tiles for $400, then a week later pay a tiler $450 to install them. Is this acceptable?

sorry to sidetrack somewhat...

[Shane D]

.... any costs incurred in producing income can be claimed.


so for your list I would say:

Yes
Maybe... depends replacing a fence with an identical one or is the new one better somehow??
Yes ....as long as it is maintanence not improvements
Yes


Cheers
Spaceman

Spaceman, Thanks for the clarification mate.

The property management fee claim now leaves me in a sticky situation as I have a friend doing the management and he does not have a company. I need to pay him out of my pocket. So obviously I cannot claim this. Am I correct?

Am I setting myself and my friend up for trouble here?

Shane

[MoatMaster]

Spaceman, Thanks for the clarification mate.

The property management fee claim now leaves me in a sticky situation as I have a friend doing the management and he does not have a company. I need to pay him out of my pocket. So obviously I cannot claim this. Am I correct?

Am I setting myself and my friend up for trouble here?

Shane

Payng someone cash for a job is not a problem - but accepting cash (under the table) is - so that's your mates problem.
But despite avoiding the IRD chasing you - you have done yourself out of a legitimate claim as I assume you have no records or receipts......hope he is cheap and worth it!

[Wayne]

I think if the improvement is less than $500 then it can be expensed rather than capitalised and depreciated?

Assuming that is the case, I've always thought about the possibility of breaking up a $1000 improvement into 2 x $500 amounts and then claiming as a deduction?

ie You buy floor tiles for $400, then a week later buy wall tiles for $400, then a week later pay a tiler $450 to install them. Is this acceptable?

sorry to sidetrack somewhat...

splitting costs is dodgy! If this was done months apart then maybe but for 1 job I don't think so.

[Shane D]

Payng someone cash for a job is not a problem - but accepting cash (under the table) is - so that's your mates problem.
But despite avoiding the IRD chasing you - you have done yourself out of a legitimate claim as I assume you have no records or receipts......hope he is cheap and worth it!

MoatMaster

Thanks for the blunt honesty. This arrangement is only very term anyway.

[One]

yeah, you can claim for cash payments as long as you have a receipt. Hand-written receipts are ok.

Adding in the other obvious expense you can claim, just in case it isn't obvious to everyone:
mortgage interest

There's quite a lot you can claim. IRD have a pretty good booklet on it: http://www.ird.govt.nz/forms-guides/...al-income.html

[Life's a blast]

I think if the improvement is less than $500 then it can be expensed rather than capitalised and depreciated?

Does this apply across the board anyone know?
ie. Buy house then items purchased under $500 (Curtains, paint, letterbox cupboard doors etc) to bring it up to livable standard can be expensed straight away even before property available to rent?
And same with furnishings purchased when house advertised furnished or unfurnished then tenants take it furnished?

[Jumpin]

I think a good accountant can give better answers, but I think the $500 limit refers to the purchase of an item, thereby giving a numerical limit between what can be expensed (100% deduction day 1) or capitalised (depreciated year by year at a rate dictated by IRD list).

However, if a repair cost $2000, then it is still a repair, and must be expensed. It would be ridiculous to do it any other way.

[Jumpin]

I think if the improvement is less than $500 then it can be expensed rather than capitalised and depreciated?

Does this apply across the board anyone know?
ie. Buy house then items purchased under $500 (Curtains, paint, letterbox cupboard doors etc) to bring it up to livable standard can be expensed straight away even before property available to rent?
And same with furnishings purchased when house advertised furnished or unfurnished then tenants take it furnished?

I think that is right, but if you buy an old house and spend more than $500 on painting to make it liveable, then that would be an improvement. (=capitalise)

If you have a house for a few years and repaint (>$500) due to wear and tear, to bring it back up to standard, that is an expense.