Can I depreciate renovations and new carpet?

Question from saleem updated on 27th June 2007:

I have spent about $25K on renovating my rental property. The two bathrooms and the kitchen was done fully replacing the old ones. Also the carpet was replaced for the entire house. Can I write this expense off in one year or I need to depreciate it. I feel as this is not an addition to the existing building but only the replacement I can write this off in one year

Our expert responded:

Generally, any renovations done on a rental propeprty in the first year of ownership must be capitalised. The reason for this is that the purchase price theoretically should have been a reflection of the state of the property. So, assuming that you have had this rental property for a few years, on the face of it the work falls into the category of repairs and maintenance. However, repairs and maintenance is just that - it repairs and maintains your asset at its current state. That means that anything you do to improve the property must be capitalised and then depreciated.

Looking at your particular example, if you have the carpet and bathroom and kitchen costs listed separately in your fixed asset register, then removing them from the property allows you to write off any remaining book value. Also, the actual cost of removing them would also fall under repairs and maintenance. However, the new bathrooms, kitchen and carpet will need to be capitalised and depreciated at their appropriate rates, which you can check on IRD's website

Kenina Court is a director of Acorn Solutions Limited, an accounting firm dedicated to working with clients to help them create wealth. She is an avid property investor, entrepreneur and seminar presenter on asset protection and wealth strategies.



Search the Ask an Expert archive

Browse all questions in the Ask An Expert Archive »

Site by PHP Developer