Question - Cost incurred in prepping a rental for sale

[artemis]

I know that costs incurred soon after buying are capitalised but is the reverse true? Currently tidying up a rental for sale - maintenance, (part) redec in and out, general flossying up - and am assuming costs can be expensed. Is that correct?

Also I realise that costs in the year of sale will need to be pro rated, but are there exceptions to that? Also that there will be some building depreciation recovered, maybe a little bit of chattels depreciation recovered as well, so have budgeted for that.

[Rosco]

Hi,

By your question it sounds like you already know the answer, but just don't want to admit it. Generally costs related to preparing for sale are not repairs, so not deductible. The true test is whether you are tenanted of not. If your tenant has moved out, and you are now renovating for sale, these expenses won't be deductible!

Rates - once tenant moves out, not deductible if preparing for sale
Insurance - same
Interest - still claimable as specific section in income tax act covers interest, so slightly different rules. This is similar for purchase

Depreciation recovery on building - in some cases can reduce this and worth checking out. https://cswaikato.co.nz/index.php/la...n-auckland/131

Depreciation recovery on chattels - generally chattels do wear out, so generally no recovery. Could get a Valuit chattels valuation to prove no recovery.

Legal fees - I think IRD indicate no, but not sure I agree with that :-)

Ross

[artemis]

Thanks for the answer and link Ross. The property will be rented up to settlement day, when the tenants switch over to be the owners.

Some work is repairs, some maintenance. Interior redec I regard as maintenance as well overdue and has been quietly going on all year, working around tenants which they are OK about in the circs.

Had a Valuit report when property bought, that was 15 years ago and most original chattels have nil book value now.