Rental income - 12.5% capital allowance, expense/repairs or not allowed at all?!

Window1

Hi

An example or two are probably best to illustrate my query:

Is money spent on replacing a flat roof that was maybe 40 years old and installing insulation under it (the old flat roof had none) a repair expense on form 11 or a capital allowance (at 12.5%) or not eligible at all for inclusion?

Similarly are wall insulation costs (no insulation previously) or attic insulation improvement (insufficient insulation previously) eligible in either category or not at all?

All of these things 'wear and tear' with age but is it that it must be the tenants doing the wearing and tearing as opposed to just wearing and tearing through age that counts?

Many thanks

ari101

I recently had a technical conversation with a tax person who would be much more knowledgeable/specialist than I on a similar point about windows.

The example we had was, if you replace an old single pane window with a modern double glazed one is it an enhancement (i.e. not allowable as a repair but can be deducted for CGT purposes on sale of the property) or is it a repair?

The argument made was, you are replacing something that was standard when fitted with the current standard, that it doesn't need to be viewed as an upgrade as it would make zero sense not to use the current standard even though it is technically better. And you may not even be able to obtain the original version anyway. Therefore that cost could be argued to be a repair.

Now whether adding insulation to a roof takes it from repair to enhancement is a question I can't give you a definitive answer on, but it seems there is some room to debate it.

I'd probably lean toward treating the insulting of walls or attic as capital enhancements. But maybe if you have a split of the roofing cost you could considered claiming part (the roof repair) as repairs and part (the insulation) as enhancement? 🤔

I don't think roofing or insulation would be considered for W&T allowances on fix / fit /equip because it isn't something you can remove and resell unlike, for example, a bathroom suite, fitted kitchen, appliances or furniture.

At the end of the day what my technical discussion got me to is there are areas where different treatments can be argued, but you are going to struggle to see detailed definitions in writing anywhere.

Window1

https://www.boards.ie/discussion/comment/119862343#Comment_119862343

Thanks - I really appreciate that detailed comment. It seems such a grey area and really does my head in as a recent recruit into having to fill in a form 11. I thought I understood it all clearly last year but now find myself second guessing what I thought last year! Like take the flat roof for eg - it was maybe 40-50 years old - it wasn't quite leaking yet but was I to wait till it leaked, ruin the interior and then the new roof deemed a repair so that I could with a free conscience claim it in under repairs? Is it now an enhancement, and can't be claimed because I didn't wait till the leak happened. I can't understand why Revenue leaves it up to each person to make up their own mind on how to treat a host of similar issues - the ones I gave above are just a sample of what I am to-ing and fro-ing on at the minute in my mind😣.

ari101

It's an annoying minefield of greyness even to me, a qualified accountant 😅

I have clients with 4 figure structural replacement/repairs being treated as repairs. I have another client who replaced a flat roof for lower 5 figures but did a clear upgrade in the process (did not go for just current standard replacement) we are treating that as enhancement. It really is case by case, and I defer to my more experienced colleague who is the named/signing person to make calls they are happy with!

riclad

You are overthinking it, you simply send all reciepts to your accountant ,say it costs

4k to fix a roof ,you.ll get tax credits for 8 years ,eg 500 a year off your tax bill on rental income .if you have one house or say a 2 bed apartment no one cares if it's an enhancement or a repair ,as long as you spent the money ,you have reciepts to say 4k spent on materials ,labour to fix the roof and you hold on to the reciepts for years incase there's a query on it from revenue

Someone whose say replacing 10 windows in 3 apartments may need more detailed reciepts ,eg labour cost,materials used,eg 20 triple glazed windows model gla2o new

Cost of install work materials used windows new frame etc new sills

Most landlords have only one or 2 units to rent out so it's easy to track reciepts use an accountant to make rental tax return if you don't want to do it yourself

Window1

https://www.boards.ie/discussion/comment/119862747#Comment_119862747

Thank you very much for taking the time to reply.

"You are overthinking it,.." ...quite possibly😅

"...no one cares if it's an enhancement or a repair ,as long as you spent the money.." ... definitely spent the money, but not so sure about the no one caring bit! 

Window1

Can anyone enlighten me on this take on my original query:

Let's say for argument sake Person A spends €5,000 on the house they were renting out. They decide to put in it as repairs so it all goes in for the year in question.

Person B spends the same amount and decides it wasn't repairs, it was an enhancement and so doesn't put it in Form 11 at all. Person B goes on to sell the house in the future for a profit and uses the €5000 to reduce their Capital Gains Tax.

Does Person A or Person B get the most tax relief - generally speaking?

Thanks!

LawBoy2018

https://www.boards.ie/discussion/2058271339/rental-income-12-5-capital-allowance-expense-repairs-or-not-allowed-at-all

The roof & insulation would be capital expenditure. Provided you rent out the property, capital allowances may be claimed at 12.5% per year.

riclad

all expenses related to repairs or general maintenance are capital allowances , as long as you have all the reciepts for materials , payment for work carried out,you can claim for the next 8 years , 12.5 per cent each year. just divide total cost by 8.its best to have a notebook and a folder containing all reciepts ,notes on all work done or items purchased. eg sofa, table ,fridge are capital expenses.its unlikely the revenue will question capital expenses as long as you can supply the receipts for each item ,or documents related to repairs on the property