Floor sanding - deductible?

Question from Denyse updated on 22nd November 2012:

I am preparing my family home for rental. As part of the tidy up I needed to remove floor coverings. I intend to get the floor sanded and finished prior to advertising it. Is it possible to claim floor sanding costs if they are incurred in the same year that the home is tenanted or would it be considered a capital improvement? I struggle to find what is allowable on the IRD website.

Our expert Mark Withers responded:

You suggest that the home is not currently rented and the work is needed to bring it up to rentable standard. In these circumstances none of these costs are deductible because they relate to remedying deterioration to the asset during a time it was being used privately for your domestic accommodation.  I.e. you have no nexus with income If the work were required to remedy wear and tear from tenants the costs would be deductible if they are not of a capital nature To determine this you ask " what is the asset" when sanding floors the asset will be the building. Provided the building is not being substantially altered or improved the costs would be repairs and maintenance. If you had carpeted the floor the new asset is the carpet. It is not considered to be attached to the building because it is tacked not glued. It would be a new capital item in its own right and would be depreciable. If you had used lino you would have glued it to the building. It becomes part of the building. IRD would probably view this as a capital improvement to the building unless there was old lino there already in which case it would be repairs and maintenance. If you feel all this sounds completely bonkers you would be correct, however our Government no longer believes buildings depreciate so the no deduction, no depreciation tax outcome for capital works on buildings versus the full deduction for repairs means there is a lot at stake when examining the deductibility of work on buildings. It will no doubt become the most problematic line item in a property investors tax return at audit time. Tip, keep before and after photos of the damage you are repairing. A picture is worth 1000 words!

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

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