Double Glazing Deductible or Depreciate?

[elliot]

I find this a grey area.

I have a house that is over 50 years old. The old wooden windows are draughty, leak warm air, hinges difficult to move and a pain to paint. So I spent $12000 removed the old windows and inserted double glazing. To be deductible the rule says replace like with like which does not make sense in this situation as the cost of double glazing is a small extra compared with single glazing.
My accountant also says I have likely increased the property value so it is depreciable.

Any comments please.

[Anthonyacat]

It's a difficult call here.

"Increasing the property value" isn't the sole determinant. There are a variety of tests. Here's a 55-page interpretation statement on it! https://www.ird.govt.nz/resources/1/...840/is1203.pdf

Your accountant probably called it correctly, but you won't be able to depreciate it, because it's a part of the building. Depreciates at 0%. The expenditure is effectively non-deductible.

[elliot]

Thanks, is it possible to get a ruling from the IRD.
Out of interest if I replaced all windows with single glass would that be deductible?

[Anthonyacat]

It is possible to get a ruling from the IRD on this or pretty much any other matter, through a process called a Binding Ruling, but I wouldn't recommend it in most cases - you simply get some tax advice and make a call. A Binding Ruling is likely to cost several thousand dollars - per the IRD website they have cost between $4k and $51k in the last few years.

There's no way to determine deductibility without all the facts, but there are certainly some instances in which I would consider adding double glazing to be deductible; in most cases it won't have changed the character of the home. There's a public policy argument to be made also, that if you could prove a case for single glazing to be deductible (which you'd probably be able to do) that adding double glazing for the benefit of your tenants should not preclude you from getting a $4,000 tax deduction.

But as always - it depends!

[Bob Kane]

My accountant also says I have likely increased the property value so it is depreciable.

Any comments please.

I think your accountant is wrong.
I have never heard of a purchaser increasing their offer after being told the house has double-glazed windows.
Would you offer more (perhaps $20k more) for a double-glazed house over a single-glazed house?
I think you are over-stating the double-glazed bit.
You had old, draughty windows in bad condition.
You replaced them.
End of story.
Deductible expense.

[Anthonyacat]

But Bob, it's so hard to say the accountant is wrong, given he's got a fuller picture than we do.

If the accountant has simply said "increases value therefore capital" then yes, that's wrong.

[Learning]

I have never heard of a purchaser increasing their offer after being told the house has double-glazed windows.
Would you offer more (perhaps $20k more) for a double-glazed house over a single-glazed house?

A sight unseen purchaser is unlikely to care.

Of course double glazing adds value over single glazed. If you were to choose between two houses identical in every way except one was double glazed and one was single wouldn't you pay $10k more for the double?

[John the builder]

A sight unseen purchaser is unlikely to care.

Of course double glazing adds value over single glazed. If you were to choose between two houses identical in every way except one was double glazed and one was single wouldn't you pay $10k more for the double?

what about the fact that you saved money by using alunium compared to timber joinery even if single glazed?

There must be something else at work here?

[Bob Kane]

Of course double glazing adds value over single glazed. If you were to choose between two houses identical in every way except one was double glazed and one was single wouldn't you pay $10k more for the double?

Certainly not!
The difference in heating would hardly be noticed.

[Bob Kane]

But Bob, it's so hard to say the accountant is wrong, given he's got a fuller picture than we do.

But the accountant has no idea of property values.
He's an accountant, not a valuer.
His view on the change in property value is interesting but not useful.
This is where some accountants get carried away and give out advice/recommendations which are outside of their expertise.
That's why we often say "find an accountant who actually knows about property investing", isn't it?
This accountants advice doesn't seem to be based on a qualified opinion and as a result, the client may well miss out on a $12,000 expense.
So a 5 second consideration by the accountant has a large flow-on effect which seems to escape him.
Or do you think we can trust accountants to be pretty switch on about all property matters?

[Learning]

Certainly not!
The difference in heating would hardly be noticed.

From someone who's gone from single glazed to double glazed the difference is huge. Definitely one of the best comfort upgrades I've done to my house and I've done plenty.

[Aston]

Certainly not!
The difference in heating would hardly be noticed.

^^ That is a most unfortunate comment on a forum well known for sound advice from knowledgeable people.

Probably best to ignore it.

Totally agree with Learning. I have had a similar experience with double glazing.

[elliot]

Thanks for all the comments, the accountant has now approved this as deductible after much consideration. As Bob Kane said I probably over emphasised the double glazing bit.

[Rosco]

Thanks for all the comments, the accountant has now approved this as deductible after much consideration. As Bob Kane said I probably over emphasised the double glazing bit.

Hi Elliot,

Good to see you have got the right result in the end!

To help others or to explain the answer a bit more

- Repairs are replacements with similar materials that do not improve the property from its original condition when built
- BUT - where the improvement is due to technological improvement so wouldn't replace with the old materials etc

So in this case Aluminum and double glazing are technological improvements from 50 years ago.


Interesting, if had replaced single glazed wooden windows, with double glazed wooden windows, it is harder to argue the technological improvement angle, as still wooden. So this option of replacing with wooden double glazed is harder to argue as repair!

Ross

[John the builder]

^^ That is a most unfortunate comment on a forum well known for sound advice from knowledgeable people.

Probably best to ignore it.

Totally agree with Learning. I have had a similar experience with double glazing.

I assume those who have noticed the difference are in south island and lower north??In

Auckland difference is debatable but sound is a consideration and cooler in summer?