# New bathroom tax deductible question



## gebbel (4 Oct 2019)

We paid €5000 putting in a new bathroom in a rental property last year. All the kit (tiles, bath, shower, sink etc) we ordered from the UK. A local tradesman did all the work. As I'm filling in a form 11 soon, is there sanything deductible here? Many thanks.


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## Gordon Gekko (4 Oct 2019)

I would say not. Future CGT deduction.


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## torblednam (4 Oct 2019)

Is it a new bathroom i.e the addition of a bathroom that didn’t previously exist, or the replacement of a pre-existing bathroom?


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## moneymakeover (5 Oct 2019)

Sounds like a renovation/ decoration
In which case is tax deductible


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## gebbel (5 Oct 2019)

Sorry yes it was a complete renovation of an existing bathroom.


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## Yoga Woga (5 Oct 2019)

Can you deduct it if you do it 3 months before you move and subsequently rent out the house? We're gutting our bathroom at moment - and plan to rent out our home - the bathroom and works are being done with renting in mind.


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## Sarenco (5 Oct 2019)

I don't see how replacing a bathroom could be considered "maintenance".

Surely it's an "enhancement" (and hence deductible from CGT, not income tax).


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## moneymakeover (5 Oct 2019)

Capital expenditure
If it's a similar level bathroom to what was there before






						What expenses are allowed?
					

This page outlines the expenses you can deduct from your taxable rental income




					www.revenue.ie


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## Yoga Woga (5 Oct 2019)

From reading the various comments - I would have to agree with the income tax angle - as otherwise we'd be making do with a tatty bathroom - and to be honest it all needs to be replaced for functionality and any enhancement is purely secondary. Deduct over 8 years?


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## Sarenco (5 Oct 2019)

Capital expenditure on property improvements is not deductibe in calculating rental profit.

Routine or recurring maintenance that simply brings a property back to its original condition, such as cleaning, painting and decorating, is clearly deductible.

Did the bathroom replacement improve or add value to the property?  If it did, it seems to me that constitutes "capital expenditure" and is not deductibe in calculating rental profit.

But it is, of course, deductible in calculating a taxable capital gain.


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## torblednam (6 Oct 2019)

Sarenco said:


> Capital expenditure on property improvements is not deductibe in calculating rental profit.
> 
> Routine or recurring maintenance that simply brings a property back to its original condition, such as cleaning, painting and decorating, is clearly deductible.
> 
> ...



There’s always shades of grey here, but:

If the OP just replaced the sanitary ware, with other sanitary ware of similar spec, I’m sure you’d agree that’s not enhancement.

If they just replaced the tiling, ditto.

If they just repainted, ditto.

If they just replaced the shower, ditto.

All of them together....???


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## Sarenco (6 Oct 2019)

Well, repairs are certainly deductible in calculating rental profit.  A "repair" means the restoration of an asset to its original condition by replacing a subsidiary part of the whole asset.  So, replacing broken tiles, mending a leaking toilet, shower door, etc.

But alterations, additions or improvements of a capital nature are not deductible.

Repainting would certainly be deductible as "maintenance".


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## torblednam (6 Oct 2019)

Sarenco said:


> Well, repairs are certainly deductible in calculating rental profit.  A "repair" means the restoration of an asset to its original condition by replacing a subsidiary part of the whole asset.  So, replacing broken tiles, mending a leaking toilet, shower door, etc.
> 
> But alterations, additions or improvements of a capital nature are not deductible.
> 
> Repainting would certainly be deductible as "maintenance".



And, given that the various items subject to replacement no longer exist and their state at time of replacement can’t be confirmed, other than by the owner, how do you think a Revenue official would be likely to view the claim...


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## Sarenco (6 Oct 2019)

I think Revenue are likely to view the bathroom replacement as capital expenditure on a property improvement.

Demonstrating that it constitutes a "repair" or "maintenance" would seem challenging.


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## Yoga Woga (6 Oct 2019)

In our case - we bought a second hand home. The main bathroom was very tatty. The most cost effective thing was to gut it. Every item needed to be replaced (16 years of age) From a yellowing bath, to some damaged tiles, a leaking shower (which got through the floor/ceiling below/plasterboard behind the tiles) a chipped sink basin. We have had to replace all the plasterboard due to damage from water and also from tile removal. I would say any revenue official has no interest in visiting our bathroom and yes sometimes everything does need to be replaced at once. If we were to do the work separately it would be daft and certainly from reading the thread I am certain our work similar to that of the OP is indeed maintenance; gutting it was the most logical and practical action. I will contact revenue during the week to confirm. [Bath, Shower, Sink, Toilet to match, Painting, Tiling and plasterboard as well as plumbing repairs when I damaged a hot water pipe while gutting the bathroom also window glass, hinge and handle had to be replaced - other option was using a pair of pliers to close the window and a hard pull to get it to shut due to a broken hinge - so yes all maintenance and no intention of trying to pull a fast one on revenue whatsoever - why should any of that be challenging when its the absolute reality and truth of the matter? )


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## cremeegg (6 Oct 2019)

torblednam said:


> how do you think a Revenue official would be likely to view the claim...



We have a self-assessment system, so it is not, initially at least, a matter of any Revenue official's view. 

There are 3 possibilities:

*1.* Repairs and separately maintenance, are allowable expenses which can be deducted from income in the year they are incurred. In my opinion painting would be a straightforward example, indeed it is specifically mentioned in the Revenue guidance. If painting is included here, then surely tiling is also, just an opinion.

*2.* Where a house is let as a furnished residence and the rental income is chargeable under Schedule D Case V, a wear and tear allowance can be claimed for *capital expenditure on plant in the house* under section 284(6) and (7) Taxes Consolidation Act 1997 (TCA). 

See here   


			https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-04/04-08-12.pdf
		


I suggest that new bathroom fittings would come under this heading.

This at 12.5% pa for 8 years. It is claimed as a capital allowance and not an expense in the profit computation.

*3.* Capital expenditure on the property itself, building an extension would seem a straightforward example, can neither be deducted as an expense nor a capital allowance, it can be added to the cost of the property as part of a CGT calculation when the property is sold.

Deciding which of the three headings the cost belongs in is the responsibility of the taxpayer. There is no reason why each individual item in the project should not be considered separately. It can be a matter of opinion and no Revenue official is likely to query and reasonable self assessment.

Personally I think the following from [broken link removed] 

You can claim capital allowances on the fitting out and furnishing of your rental property. The fixtures and furniture must belong to you and be in use at the end of each year that you claim for. 

Suggests that the OP should look at the expenditure as, capital expenditure on the house, and deduct 12.5% as a wear and tear allowance, not an expense.


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## Oisin19 (6 Oct 2019)

Would the items not deemed to be repairs be classified as capital allowances and claimed over 8 years?


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## torblednam (6 Oct 2019)

Sarenco said:


> I think Revenue are likely to view the bathroom replacement as capital expenditure on a property improvement.
> 
> Demonstrating that it constitutes a "repair" or "maintenance" would seem challenging.



With respect that’s absurd. 

If what’s there after the work is done, is relatively bog standard (pardon the pun) how can anyone form the view that it’s improvement of the property (in the specific context of improving beyond the original state / spec).

There’s a certain amount of case law in relation to this issue. One example cited is the replacement of old single glazed windows, with double glazing. Now that is clearly an improvement, but advancement in standard materials means that such a replacement would be accepted as a repair.

This would never happen in the real world but how this would theoretically play out is as follows:

- Joe Bloggs spends money as per the OP.
- For whatever reason, Revenue enquire about the rental deductions.
- Joe explains he had replaced the various bathroom fittings, tiling etc, and repainted and has paperwork evidencing the expenditure.
- Revenue official decides (based on nothing evidential) to classify some proportion as capital and disallow deduction for that part.
- Taxpayer appeals as they’re entitled to.
- Eventually, a couple of years later, the matter comes before a Tax Appeal Commissioner (a quite bemused one no doubt, given the relatively trivial amount involved).
- The taxpayer gives evidence that the old bathroom had become unsatisfactory from wear & tear, leaks, breakage, or whatever.
- Revenue has zero evidence to the contrary.
- Appeal Commissioner has to have regard to the taxpayers evidence and, even more bemused than they were at the outset, they find in the taxpayers favour.


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## Yoga Woga (6 Oct 2019)

Hmmmm. I'm definitely asking Revenue for a suggestion on how to proceed - I have always found them most helpful over the years. My thoughts after reading the above re my own case and the  OP - would be a combination of Expenses for maintenance and offsetting the balance at 12.5% each year for capital allowances - bath/shower etc - nothwithstanding their disrepair. The glass I have replaced in the window - is a higher spec - but as torblednam mentions - this is simply an advancement in material standards. Now where would a new front door 'enter' into all of this? or should I start my own thread?


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## Sarenco (6 Oct 2019)

torblednam said:


> With respect that’s absurd.


You asked how I think a Revenue official would likely view a claim on the basis of the facts presented by the OP.  You are obviously free to disagree but I don’t think it’s fair to describe my response as absurd.  As you said yourself, this is a grey area.

The OP didn’t tell us that he replaced like-with-like or that there was anything wrong with the existing bathroom.  You added all these details yourself.


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## cremeegg (6 Oct 2019)

Yoga Woga said:


> Hmmmm. I'm definitely asking Revenue for a suggestion on how to proceed



This is of course entirely contrary to the spirit of self assessment and a revenue official could get in trouble if they were seen to advise a taxpayer, see Apple.

It is of course also a very sensible idea, and as you say they are usually very helpful.


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## RedOnion (6 Oct 2019)

@Yoga Woga
As you can see there's no consensus on this area, but I think it'd be worthwhile for you to start a new thread, highlighting that this is a property you've just purchased and have never rented previously (if I've understood your posts correctly).
Surely that's an 'improvement' rather than repair / maintenance? Personally, I can't see how such capital expenditure could be offset against rental income.


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## Sarenco (6 Oct 2019)

Well, generally pre-letting expenses are not deductible so it might actually be advantageous to treat the works as capital expenditure (and not a repair) in those circumstances.


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## torblednam (6 Oct 2019)

Sarenco said:


> You asked how I think a Revenue official would likely view a claim on the basis of the facts presented by the OP.  You are obviously free to disagree but I don’t think it’s fair to describe my response as absurd.  As you said yourself, this is a grey area.
> 
> The OP didn’t tell us that he replaced like-with-like or that there was anything wrong with the existing bathroom.  You added all these details yourself.



Apologies, I read post #15 as a follow up to the OP, only after realising now that it’s a different poster.

I still think you are approaching things with an overly narrow view of what can constitute a repair or renewal. 

I was actually going to suggest that you could turn this on its head, but I see you’ve already beaten me to it, in a way.

If you owned a second property (and for ease of analysis let’s say it’s neither a PPR nor a let property), and on disposal sought to claim enhancement expenditure for the type of spend under discussion here, Revenue would tell you no chance.


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## Sarenco (6 Oct 2019)

torblednam said:


> If you owned a second property (and for ease of analysis let’s say it’s neither a PPR nor a let property), and on disposal sought to claim enhancement expenditure for the type of spend under discussion here, Revenue would tell you no chance.


Don't think so.

As it happens, a relative of mine sold a holiday home a couple of years ago and claimed (on the advice of her accountant) a bathroom refurbishment as an enhancement for CGT purposes.  Revenue didn't have any problem with this deduction.

Every case is obviously fact specific but in this case the refurbishment very clearly added value to the property at the time it was sold.


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## torblednam (6 Oct 2019)

Sarenco said:


> Don't think so.
> 
> As it happens, a relative of mine sold a holiday home a couple of years ago and claimed (on the advice of her accountant) a bathroom refurbishment as an enhancement for CGT purposes.  Revenue didn't have any problem with this deduction.
> 
> Every case is obviously fact specific but in this case the refurbishment very clearly added value to the property at the time it was sold.



When you say Revenue had no problem, do you mean they queried it and gave it a green light, or what?


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## Sarenco (6 Oct 2019)

torblednam said:


> When you say Revenue had no problem, do you mean they queried it and gave it a green lightt?


Yes.


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## torblednam (7 Oct 2019)

Sarenco said:


> Yes.



Interesting. Probably not worth arguing over on materiality alone.


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## Sarenco (7 Oct 2019)

Well, it was material enough for Revenue to look for copy invoices, etc.


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## moneymakeover (7 Oct 2019)

Either way of claiming seems reasonable

Either against rental income

Or against capital gain on selling

Just not both obviously


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## Sarenco (7 Oct 2019)

moneymakeover said:


> Either way of claiming seems reasonable


I'm afraid that's not the way the tax code works - you don't get to pick and choose.


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## moneymakeover (7 Oct 2019)

No doubt there is a recommended approach

My own view would be to offset the decoration costs against the rental income.

If a landlord neglected to do this it might be acceptable to revenue to offset against capital gains.


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## Sarenco (7 Oct 2019)

Your own view notwithstanding, it is crystal clear that decoration expenses can be deducted in calculating rental profit.

It is also crystal clear that decoration expenses cannot be deducted in calculating a capital gain.


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## Setanta12 (7 Oct 2019)

Can I interject to say here but ringing the Revenuie for an opinion is a waste of time.  They aren't tax-qualified and you can't point to a telephone conversation you has when many years down the road you need to rely on it.

If you need advice outside of AAM, go to a tax advisor!  'You get what you pay for!'


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## Bronte (8 Oct 2019)

Sarenco said:


> I don't see how replacing a bathroom could be considered "maintenance".
> 
> Surely it's an "enhancement" (and hence deductible from CGT, not income tax).


No it's not, it's a repair.  That's how I treat it.  And my accountant agrees.  Same thing with the boiler.  If you put in a brand new bathroom  where none existed before that would be enhancement.  Rental properties need constant repairs and maintenance including redoing bathrooms every so often.


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## Bronte (8 Oct 2019)

torblednam said:


> There’s always shades of grey here, but:
> 
> If the OP just replaced the sanitary ware, with other sanitary ware of similar spec, I’m sure you’d agree that’s not enhancement.
> 
> ...


I had this issue a couple of years ago.  I had three showers where the tiling was very bad so I got a quote to replace them.  As I live abroad I only got to see them afterwards, it was around 6K for the 3 I think. I was very sorry I didn't just pull out the whole shower room and start from scratch as now I've lovely shiny tiled showers with the rest of the room looking shabby in comparison. Sometimes the only way to do a job right it to take out everything and start from scratch as that makes the most sense and it's more economical in the long run.  Doing it bit by bit in a small bathroom/toilet/showerroom doesn't always work.  

I've another shower room to do and I'm going to pull out the lot.  But I think I'll take pictures.  So that it's clearly repair/replacement.


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## Bronte (8 Oct 2019)

torblednam said:


> There’s a certain amount of case law in relation to this issue. One example cited is the replacement of old single glazed windows, with double glazing. Now that is clearly an improvement, but advancement in standard materials means that such a replacement would be accepted as a repair.



I actually studied this back in the day.  That was the main example and the other one was the Garage forecourt.  The canopy over it.  

Revenue changed it's mind about windows. Because you clearly can't replace wooden damaged single glazed windows with the same item in this day and age.  You have to put in PVC double glazing. A bog standard product which one time was very expensive and very much a mega improvement.  But it was still replacement.  And as you state it's an improvement for sure. But revenue are practical and now it's clear window replacement is allowed as a deduction in the tax year it's incurred.  Because it's a necessary expense.  

Also given all the legislaiton about standards we landlords are supposed to have special windows that open a certain way.  So it's not like we can avoid the cost.  

Cream Egg I disagree wtih you on the writing down of bathrooms over 8 years.


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## Bronte (8 Oct 2019)

Yoga Woga said:


> Hmmmm. I'm definitely asking Revenue for a suggestion on how to proceed - I



Good luck with getting an answer from revenue.  You'll get a different answer depending on who you speak to.  But you most certainly will not be getting it in writing.  What you need is an accountant .


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## Yoga Woga (8 Oct 2019)

I'll take a chance - I can either be right or wrong and it's not going to be significant money either way.


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## RedOnion (8 Oct 2019)

Yoga Woga said:


> it's not going to be significant money either way.


It could be significant enough in 6 years time if Revenue decide you were wrong and add penalties and interest.
Not trying to scare you, but you should get advice on this.


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## Sarenco (8 Oct 2019)

Yoga Woga said:


> I'll take a chance - I can either be right or wrong and it's not going to be significant money either way.


Be careful.  Pre-letting expenses are not deductible.


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## Sarenco (8 Oct 2019)

Bronte said:


> No it's not, it's a repair


Replacing, on a like-for-like basis (allowing for advancements in materials, etc), an item that has been damaged or is nearing the end of its useful life is certainly a repair.

However, the OP has just told us he spent €5,000 on installing a new bathroom - you're assuming the rest in arriving at a very definitive conclusion.


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## Bronte (8 Oct 2019)

Sarenco said:


> Replacing, on a like-for-like basis (allowing for advancements in materials, etc), an item that has been damaged or is nearing the end of its useful life is certainly a repair.
> 
> However, the OP has just told us he spent €5,000 on installing a new bathroom - you're assuming the rest in arriving at a very definitive conclusion.


I think you're getting bogged down in two things: New and 5K. 

You are doing well nowadays to re do a bathroom for 5K, so while it seems a large sum it actually isn't. It's a normal price now to do it, as a landlord you either do it right or you do it in drips and drabs which is more costly, wasteful and time wasting, to say nothing of driving tenants nuts or yourself insane.  

I've been quoted 30K to rewire, new shower-room, paint, fix roof etc.  I've decided against doing it as it's too expensive and I can't do it with the tenant in situ. Worst of all is I can't increase the rent.  So I'm waiting in hope the place falls more to bits and the council comes and tells me to sort it out and then I can evict the tenant and do a right job on it.  However much I spend will go straight off as repairs.  What's more the RTB/Government are telling us that spending money doing up places is no reason to get rid of tenants.  Because it's not drastic enough.  Now they can't have it both ways.

I shall as ever be relying on my accountant on the tax claims on this, but from decades of experience I know this is repair and not capital enhancement.


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## Sarenco (8 Oct 2019)

Bronte said:


> I think you're getting bogged down in two things: New and 5K.


No Bronte, I'm not.

I pointed out earlier in this thread that a relative of mine sold a holiday home a couple of years ago and claimed (on the advice of her accountant) a bathroom refurbishment as an enhancement for CGT purposes.  Revenue queried this but ultimately accepted this deduction.

Every case is obviously fact specific but in that case the refurbishment very clearly added value to the property at the time it was sold.

The OP didn’t tell us that he replaced items on a like-with-like basis or even that there was anything wrong with the existing bathroom that required replacement.  You added all these details yourself to arrive at a very definitive conclusion.


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## Yoga Woga (8 Oct 2019)

Sarenco said:


> Be careful.  Pre-letting expenses are not deductible.


I now know that from my separate thread. It's a catch 22. If  we moved the tenants in and did the work around them it would work tax wise - but very unfair to tenants and impractical.


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## Yoga Woga (8 Oct 2019)

RedOnion said:


> It could be significant enough in 6 years time if Revenue decide you were wrong and add penalties and interest.
> Not trying to scare you, but you should get advice on this.


I'm aware of that and would be sensible. It's been a few years since I had a rental property and made any returns. I didn't expect I'd be back doing it again. As I now know that I can't claim for pre-rental expenditure it would only be above board items going in - which when all the graft and expense has been done this year will be small money next year (s) when doing any returns.  I might wait and install the boiler when there are tenants in situ though.


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## Bronte (8 Oct 2019)

Sarenco said:


> No Bronte, I'm not.
> 
> I pointed out earlier in this thread that a relative of mine sold a holiday home a couple of years ago and claimed (on the advice of her accountant) a bathroom refurbishment as an enhancement for CGT purposes.  Revenue queried this but ultimately accepted this deduction.
> 
> ...


Landlords don’t go around fitting new bathrooms unless they have to.

Why did revenue query the expense. Was that holiday home let out or not. Why was the refurbishment done.


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## Sarenco (8 Oct 2019)

Bronte said:


> Why was the refurbishment done.


To increase the value of the property!  You know, an _enhancement_ on what was already there.


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## Bronte (8 Oct 2019)

Sarenco said:


> To increase the value of the property!  You know, an _enhancement_ on what was already there.


Well as a landlord I only do bathrooms because I have to! Not to increase the value. And I did not do them to the level I have in my own home. But if I were renovating a property with a view to selling then I’d approach the matter in an entirely different way.


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## Sarenco (8 Oct 2019)

With respect @Bronte, this thread is not about what you do or don't do.

It is entirely possible that a landlord outside a RPZ would seek to improve their property to increase its rental potential.


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## torblednam (8 Oct 2019)

Sarenco said:


> With respect @Bronte, this thread is not about what you do or don't do.
> 
> It is entirely possible that a landlord outside a RPZ would seek to improve their property to increase its rental potential.



While it’s admirable that you’re playing devil’s advocate, I think it’s fair to say that it’s exponentially more likely that the installation of a new bathroom in a rental property is much more likely to happen (and be accepted by anyone looking at it) as a repair/renewal, rather than to “enhance” the rental potential (or indeed the property value, which would be a ludicrous premise in circumstances where the property is held for letting).


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## Sarenco (8 Oct 2019)

I'm not trying to play devil's advocate.

I'm simply pointing out that capital expenditure on a property improvement is not deductible in calculating rental profit.  But it is deductible in calculating a capital gain.

That's not an opinion - that's simply what the tax code provides.

I've said repeatedly on this thread that every case is fact specific. 

I don't see any point in offering a very definitively stated opinion on the basis of a fact pattern that is "exponentially more likely" (whatever that means). 

I just offer an opinion (that can be accepted or ignored - no skin off my nose) on the basis of what we have been actually told.  Not imagined or assumed.


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## torblednam (8 Oct 2019)

Sarenco said:


> I'm not trying to play devil's advocate.
> 
> I'm simply pointing out that capital expenditure on a property improvement is not deductible in calculating rental profit.  But it is deductible in calculating a capital gain.
> 
> ...



Hold on.

Take this back to the OP’s question - he is looking for an income tax deduction if one is available. 

The answer to that is, in effect, yes. In the absence of evidence to the contrary, Revenue will accept expenditure of the type outlined by the OP, as repairs / renewals, if that is how the OP characterises it.

Do you disagree?


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## Bronte (9 Oct 2019)

Sarenco said:


> I'm simply pointing out that capital expenditure on a property improvement is not deductible in calculating rental profit.  But it is deductible in calculating a capital gain.



Ok how's this one for you, literally just found out one of my boilers (the second one in less than 2 years) has given up the ghost. 2,500 Euro parts, labour 7 year guarantee.  Replacement or capital expenditure?


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## Sarenco (9 Oct 2019)

torblednam said:


> Hold on.
> 
> Take this back to the OP’s question - he is looking for an income tax deduction if one is available.
> 
> ...


Yes, I disagree.

The answer is that replacing an item on a like-for-like basis, allowing for advances in materials, that is damaged or is nearing the end of its useful life is a repair.

I've already pointed to a case where Revenue accepted that a bathroom refurbishment was an improvement.

Again, every case is fact specific - there's no "default" position.


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## torblednam (9 Oct 2019)

Sarenco said:


> Yes, I disagree.
> 
> The answer is that replacing an item on a like-for-like basis, allowing for advances in materials, that is damaged or is nearing the end of its useful life is a repair.
> 
> ...



And the fact in this case is that the person wants to take an income tax deduction, in which case the answer is, call it repairs / renewals and there won’t be a problem.

If Revenue ask about the rental deductions, he has the receipts for fixing up a bathroom in a rental property - there’s nothing to suggest enhancement / improvement beyond the normal (bog!) standard.


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## Bronte (9 Oct 2019)

Sarenco said:


> I've already pointed to a case where Revenue accepted that a bathroom refurbishment was an improvement.




In that case it was a serious enhancement of what is more a private dwelling than a landlord refurbishing a bathroom after tenants.  

Out of interest how come revenue queried the CGT return and in what circumstances was the enhancement explaination accepted by the revenue official.  Was it a meeting or what?


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## Sarenco (9 Oct 2019)

torblednam said:


> there’s nothing to suggest enhancement / improvement beyond the normal (bog!) standard.


Equally there's nothing to suggest that it wasn't an enhancement.  You're still making assumptions.


Bronte said:


> Out of interest how come revenue queried the CGT return and in what circumstances was the enhancement explaination accepted by the revenue official. Was it a meeting or what?


Revenue requested details and copy invoices.  Correspondence only, no meetings.


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## Bronte (9 Oct 2019)

Sarenco said:


> Equally there's nothing to suggest that it wasn't an enhancement.  You're still making assumptions.
> 
> Revenue requested details and copy invoices.  Correspondence only, no meetings.


Interesting.  Do you have any idea why? Was the enhancement so high that it triggered something do you think.  I keep all my receipts till I die.  Just in case.  Just for revenue. Something my old boss told me when he got caught for 2 million.


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## Sarenco (9 Oct 2019)

Bronte said:


> Do you have any idea why?


It's really not that unusual for Revenue to raise queries on tax returns.


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## Bronte (9 Oct 2019)

Sarenco said:


> It's really not that unusual for Revenue to raise queries on tax returns.


I wouldn't mind being audited.  Then I think I could throw away boxes and boxes of receipts and files.  

I was only asking you to find out what triggered the questions.  Of course some are random checks, but sometimes there is a reason.  One good reason would be if it was a large sale price versus purchase price and little CGT was being paid I would have thought.


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## Sarenco (9 Oct 2019)

@Bronte 

I have no idea what triggered the query from Revenue.  It could well have been entirely random.


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## Gordon Gekko (9 Oct 2019)

I am tax qualified. I am strongly of the view that Sarenco is correct.

If I was replacing a bathroom in my rental property, I would record it as enhancement and take a deduction against the gain when I sell it.

I would claim capital allowances over 8 years for apparatus like a boiler.

If I’m repairing something (like an existing shower or a floor), I just claim a full income tax deduction.

Wanting something to be the answer to a question does not make it the right answer.


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## Sophrosyne (9 Oct 2019)

I agree with Sarenco in one respect and that is that the OP hasn’t supplied enough information.

The expenses incurred could be viewed as either capital or revenue expenditure.

It all depends on the spec.

If the new bathroom is of the same standard and layout as the old one it is a revenue expense.

If it’s a higher-spec bathroom, better-quality fittings and/or of a different layout, it will be capital expenditure.


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## Sarenco (9 Oct 2019)

Surely something has to be faulty, damaged or worn out for the replacement to constitute a repair?

For example, simply replacing an item with something of a similar spec won't constitute a repair if it's purely for reasons of taste or fashion.  

Does anybody remember avocado bathroom suites from the 80's?


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## torblednam (9 Oct 2019)

Gordon Gekko said:


> I am tax qualified. I am strongly of the view that Sarenco is correct.
> 
> If I was replacing a bathroom in my rental property, I would record it as enhancement and take a deduction against the gain when I sell it.
> 
> ...



Look at you, all tax qualified...!!  

Not that I doubt you have your tax exams, but in my job I routinely deal with people who have their professional tax and/or accountancy exams (and are presumably subscription paying members to be using the CTA / ACA / ACCA designations), and the standard of tripe they trot out is appalling.

At the end of the day, anyone who posts here anonymously (and in my defence, I do so at least partly because have to) is on an equal footing. But I too am plenty qualified, experienced and competent to have a valid opinion. 

I respectfully disagree with your position on the boiler. A boiler is undoubtedly a fixture, and an integral part of the central heating system (you hardly capitalise and write down the radiators and piping!?) If you bought a house, and when you viewed it there was a boiler but when you got the keys you discovered the boiler was gone, honestly, how would you react?!


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## Bronte (9 Oct 2019)

Gordon Gekko said:


> I am tax qualified. I am strongly of the view that Sarenco is correct.
> 
> If I was replacing a bathroom in my rental property, I would record it as enhancement and take a deduction against the gain when I sell it.
> 
> ...


My accountant is tax qualified. Hired by me from this website having sufficiently impressed me with the expertise in posts.

And I myself feel well qualified enough from dealing with this particular area of taxation to know what I’m talking about.  I shall be writing the boiler off as a one off. But if I buy a bed I’ll write that off over the 8 years. I draw the line though at 100 Euro in that regard, I’m not writing any item under a hundred over 8 years.

A different accountant I encountered on here told me some of his clients have a 1k limit. Good luck to revenue staff trying to do the back calculations on those. I’ve one excel spreadsheet just to do the 8 years on every bed, fridge, Hoover, settee,  locker I buy.


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## deadlyduck (9 Oct 2019)

The article by Ken Hardy in the attached link might be helpful (or maybe it will further stir things up!)



			https://assets.kpmg.com/content/dam/kpmg/ie/pdf/2017/06/ie-irish-tax-review-ken-hardy-capital-allowances.pdf


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## torblednam (10 Oct 2019)

Sarenco said:


> Surely something has to be faulty, damaged or worn out for the replacement to constitute a repair?
> 
> For example, simply replacing an item with something of a similar spec won't constitute a repair if it's purely for reasons of taste or fashion.
> 
> Does anybody remember avocado bathroom suites from the 80's?



Not sure what the basis for your assertion there is - I think the only requirement would be that the asset has been used, and therefore its condition is in some way inferior / deficient relative to to its original state. Any expense incurred in restoring things to their original state (i.e. similar spec allowing for advances in standard materials) is therefore deductible.

So if you have a bathroom in a house that has been occupied for any meaningful period, there is indisputably going to be an element of wear. If the owner renovates at that point, regardless of whether it was objectively necessary (or simply because they had a nice tenant whose only gripe was about the avocado bathroom), as long as the result of the expenditure is a bathroom of similar functional use, then that expenditure is what it is, like for like replacement.

To quote from the KPMG article linked by Deadlyduck above:
_Simply put, the work could be a repair and not an improvement if, after the work is carried out, the asset can only do the same job as before. In addition, the work is considered an improvement and therefore disallowable as capital expenditure if, as a result of the work, more can be done with the asset, or the asset can be used to do something that it could not do before. _
In the case of a bathroom, unless you've done something pretty drastic and expensive, it's hard to see how replacing tiles, bath, shower, sink etc could give rise to improvement in function.

It's very important to bear in mind that the system is self-assessment and Revenue have a longstanding commitment in their Customer Charter to the presumption of honesty. This means that while they may ask you to provide a reasonable level of explanation, or evidence, in relation to your affairs, they cannot and do not start from a default position of assuming you are lying and a tax cheat. And before anyone is tempted to gush about what a great bunch of guys and dolls they must be, this is not because they are all soft and cuddly but because of the principles of natural justice and fairness that they will be held to by external reviewers, the ombudsman, or the Courts, if they treat people otherwise.

I think your relative was simply lucky that their enhancement expenditure wasn't challenged, particularly if you look at one of the examples in the relevant Tax & Duty manual, which I'm pasting in at the bottom. In the same way that nobody here knows why the CGT return was chosen to be examined, nobody knows that they necessarily thought too much about the enhancement expenditure at all. I could say with a high degree of confidence though, that Revenue's best, brightest and most experienced aren't spending their days looking at and/or getting bent out of shape over relatively small and mundane things. I'd say it was most likely a case of a person being given an instruction to check X number of returns, for computational errors and to see that the figures could be verified, so once the receipts were there and they related to the property, the necessary box was ticked. Alternatively, it may have been identified that the enhancement expenditure looks a bit iffy on this, but in the absence of any other issues, it wasn't worth getting into, on a materiality basis.

_A person buys a cottage (not his main residence) and spends €10,000 in making good dilapidations. Later he has the cottage rewired for €2,000 and has it completely redecorated for €4,000. He also adds a garage at a cost of €12,000. When he comes to sell the property the following are not allowed in the computation of his chargeable gains—

                                 €
Rewiring                  2,000

Redecoration           4,000

Total not allowable 6,000

This is because if the cottage were a fixed asset of a trade the expenditure would have been revenue expenditure and not capital expenditure.

The other expenditure would be of a capital nature and therefore allowable, namely—

                                             €
Making good dilapidations 10,000

New garage                       12,000

Total allowable                  22,000

These items are not in the course of the enjoyment of the property but as fixed expenditure incurred to obtain an asset or enhance the value of an asset._


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## Bronte (10 Oct 2019)

Mandelbrot I presume in your case of the cottage if he'd done the rewiring and redecoration as part of the initial dilapidations expenditure it would qualify. For CGT.  I'm thinking here specifically of myself when I spent about 70K doing up a dilapidated house to rent.  There's the new windows, bathrooms, kitchens, rewireing, plastering, painting all as one job as it were.  To me they were a one time initital enhancement from unliveable (very bad state) to modern.  

In your example of the rewiring later, with tenants in situ (my current situation) then I'd write that cost off as a repair/replacement.  

(The garage, like an extension I can clearly see an an enhancement, particularaly as they add value, as in,  generally, it increases the house value) 

But of course this gets more tricky now for me as I've a quote from a builder for 32K for rewiring, repainting, new shower room.  But the place badly needs it.  So when I do this, (if the tenants hopefully leave) then I'll write that off in the tax year it is incurred in.  And it's mainly due to the wear and tear by tenants who don't think putting on heating in the showeroom, never mind the flat, nor opening windows for air is a good idea.  

Incidentally I divided that property into two some many years back and put in a new showeroom/kitchen etc and that I'm keeping for my CGT bill.  Because I didn't really consider it 'repair/refurbishment'. 

Anyway I think I'm pretty fair and honest about how I allocate things for revenue purposes.


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## Sarenco (10 Oct 2019)

torblednam said:


> I think the only requirement would be that the asset has been used, and therefore its condition is in some way inferior / deficient relative to to its original state.


I'm not sure I agree that simply using an item for its intended purpose necessarily means that its condition will be inferior/deficient to its original state.  But I certainly agree that replacing a worn item on a like-for-like basis could constitute a repair.


torblednam said:


> I think your relative was simply lucky


I don't.  The replacement bathroom was demonstrably of a better quality/specification to the one it replaced.  It was very clearly an improvement on what was there previously by any reasonable measure.

I really don't see what point you are making with the cottage example above.  Nobody is suggesting that rewiring or redecorating would be anything other than revenue expenditure.


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## Gordon Gekko (10 Oct 2019)

[broken link removed]

If a deduction for a boiler isn’t claimed via capital allowances over 8 years, then why do certain energy efficient boilers qualify for accelerated capital allowances?


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## Gordon Gekko (10 Oct 2019)

I am also struggling to think of an instance where I or anyone I know (e.g. clients, friends, or family) has renovated a bathroom on the basis that its constituent parts were no longer fit for purpose.

It’s always been “that looks a little tired”, “I no longer need a bath”, or “we should really reconfigure that”.

Yes, if someone’s gigantic backside cracks a toilet and it has to be replaced, by all means claim a full tax deduction in Year 1.

But I’ve yet to see any example of a normal bathroom renovation being anything other than a CGT event.

I’d love Ireland to win the Rugby World Cup, but just believing it and posting it here won’t make it so.


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## torblednam (10 Oct 2019)

Gordon Gekko said:


> [broken link removed]
> 
> If a deduction for a boiler isn’t claimed via capital allowances over 8 years, then why do certain energy efficient boilers qualify for accelerated capital allowances?



Because in that instance they appear to be part of, or constitute, an energy management system and they appear on a specific list which is specifically legislated for.

Did you read the KPMG article from the Irish Tax Review, that Deadlyduck linked? A boiler could certainly constitute plant in some settings, but in the context of a dwelling house, it’s a fixture (unless it’s a boiler of the type specifically legislated for as qualifying for ACA’s).


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## torblednam (10 Oct 2019)

Gordon Gekko said:


> I am also struggling to think of an instance where I or anyone I know (e.g. clients, friends, or family) has renovated a bathroom on the basis that its constituent parts were no longer fit for purpose.
> 
> It’s always been “that looks a little tired”, “I no longer need a bath”, or “we should really reconfigure that”.



Where is the requirement that the parts replaced are worn out / no longer fit for purpose? 

That’s not a requirement. If you replace fixtures (capital items) and do not materially improve / enhance the property as a whole beyond its original condition / functionality, you do not have an enhancement, there is no CGT event as you might put it.

For income tax the test for deductibility is that the expenditure was wholly & exclusively laid out for the purpose of the trade (and that is grandfathered in for a Case V activity). People get hung up on the question of, and meaning of, “repairs”, but that’s simply the most convenient generic label to attach to expenditure of the type the OP described. I’ve used the phrase “repairs and renewals” a couple of times here, because the category is in fact broader than what might strictly fall within “repairs”.

Expenditure as described by the OP, that doesn’t materially enhance the property, beyond its original state, is not capital. 

It is therefore simply a question of what type of non capital expenditure it is, and whether it’s deductible. I believe it quite clearly is.


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## Sarenco (10 Oct 2019)

torblednam said:


> If you replace fixtures (capital items) and do not materially improve / enhance the property as a whole beyond its original condition / functionality


Whatever about the materiality qualifier (can you point to anything in that regard?), I am delighted to see that you now seem to finally accept that replacing a fixture that improves or enhances a property beyond its original condition is not a deductible expense in calculating a rental profit.

But it is a deductible expense in calculating any subsequent capital gain.

Hopefully you will also be big enough to acknowledge that we simply don't know what category the OP's bathroom refurbishment falls within as a factual matter.


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## torblednam (11 Oct 2019)

Sarenco said:


> Whatever about the materiality qualifier (can you point to anything in that regard?), I am delighted to see that you now seem to finally accept that replacing a fixture that improves or enhances a property beyond its original condition is not a deductible expense in calculating a rental profit.
> 
> But it is a deductible expense in calculating any subsequent capital gain.



I’m sure I never suggested that you absolutely couldn’t enhance a property by spending money on a bathroom. But you’d need to be able to demonstrate the enhancement, and it needs to be reflected in the state and nature of the asset at the time of disposal (per section 552TCA97).



Sarenco said:


> Hopefully you will also be big enough to acknowledge that we simply don't know what category the OP's bathroom refurbishment falls within as a factual matter.


You’re right, we don’t, as an absolute fact. But I struggle to see how one can demonstrate an enhancement to an entire property by virtue replacing the bath, shower, toilet bowl, sink and tiling in a pre-existing bathroom, at a total cost of 5k.

Early on you pinned your colours to the mast when you said you believed Revenue would take the view that it was enhancement, and I’ve been at pains to explain that in the absence of actual evidence of enhancement of the property as a whole, there’s no basis to believe that.

I’ve gone through the relevant legislative provisions and statutory tests for deduction, not so much to convince you or Gordon of anything, since you obviously have your own opinions (potentially tax inefficient ones in my view), but to ensure that other readers of this thread might better understand the issue.


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## Grasshopper (9 Jan 2020)

Sarenco said:


> Well, generally pre-letting expenses are not deductible so it might actually be advantageous to treat the works as capital expenditure (and not a repair) in those circumstances.


Resurrecting an old thread but it is very interesting to me currently. You mention "generally" here. What pre-letting expenses can be deducted from taxable rental income? Do LL's really wait until tenants are in situ before doing the place up (lick of paint, minor remedial works etc)? I can't imagine too many tenants would be willing to accept that. I would be interested to hear how LL's approached this?


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## Villaines (9 Jan 2020)

In terms of the original question, determining whether expenditure is of a "capital" or "revenue" nature is a concept that also exists in UK law (and essentially where our lawmakers took it from).

HMRC offers some naturally ambiguous guidance on this but do make some interesting comments such as (emphasis added) :

_"A repair restores an asset to its original condition, sometimes by replacing parts of it. Property repairs can include replacing roof tiles blown off by a storm, *replacing a broken-down boiler* or redecoration between tenants to restore the property to its original condition.

Replacing a part of the property with the nearest modern equivalent is still a repair if the improvement is incidental to the repair, such as replacing a single-glazed window with a double-glazed window."_





__





						Work out your rental income when you let property
					

Find out about tax as a landlord, and how to work out your rental income if you rent out property.




					www.gov.uk
				




This suggests that installing double glazing is a repair, not an enhancement. Replacing a boiler is a repair, not an enhancement. 

By analogy, replacing a leaking gravity fed bath/shower suite with a modern suite might well be a repair. 

The burden of proof is on the taxpayer and I'm not suggesting that HMRC's comments can be relied upon in Ireland but in the absence of specific contradictory comment from Irish Revenue then the taxpayer has to make their own determination.

As for enhancement - I've seen plenty of expensive work on properties that would cause a buyer nothing but hardship!


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## Sarenco (9 Jan 2020)

Grasshopper said:


> Resurrecting an old thread but it is very interesting to me currently. You mention "generally" here. What pre-letting expenses can be deducted from taxable rental income?


Basically pre-letting expenses (subject to a cap) on vacant property -


			https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-04/04-08-11.pdf


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## Villaines (9 Jan 2020)

Grasshopper said:


> Resurrecting an old thread but it is very interesting to me currently. You mention "generally" here. What pre-letting expenses can be deducted from taxable rental income? Do LL's really wait until tenants are in situ before doing the place up (lick of paint, minor remedial works etc)? I can't imagine too many tenants would be willing to accept that. I would be interested to hear how LL's approached this?




Pre-Letting expenses (i.e. expenses incurred before the property is rented out for the first time) are not allowed except for property fees such as management fees, letting fees and legal fees for the setup of a lease and certain expenses incurred in respect of vacant residential properties. Therefore, interest paid on borrowings before the first letting of property commences will not be allowable as a deductible expense. Expenses incurred between lettings are allowable provided the property is not occupied by the landlord during the vacant period.

For previously vacant properties, expenditure up to €5k per property can be incurred but there are specific conditions and potential clawback if the property is sold. This is a recent addition to the tax code aimed at bringing formerly dilapidated premises into the housing stock.



			https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-04/04-08-11.pdf
		


One grey area is items of furniture/functional capital items left in the property in the course of the letting that the landlord may have originally purchased for personal use long before letting. Revenue have not specifically commented on this (I don't think). Arguing that a periodic allowance can be claimed by reference to the remaining market value of the items at the commencement of letting might seem logical, but can it be contended that the expenditure was incurred wholly and exclusively for the purposes of the letting? If not, then it's not a good position on first principles.


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## Andrew365 (9 Jan 2020)

Do Pre-letting expenses cover furnishing the place?

In context of Grasshopper, he is going to let out his current PPR as he is buying a house with his wife. I assume rather than buying new furniture for his house he should take the furniture from his PPR. Then buy new furniture for his PPR (Rental Property) in which he can depreciate over 8 years reducing his tax bill? Or would he not be able to if he buys furniture before the lease starts?


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## Gordon Gekko (9 Jan 2020)

I claimed capital allowances on my own stuff when I moved out. As an example, I had a couch which had originally cost me over €2k. I kept the receipt, deemed it to be worth €800, and claimed €100 a year over 8 years. A reasonable approach in my view replicated across a number of capital items.


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## Paul O Mahoney (9 Jan 2020)

Gordon Gekko said:


> I claimed capital allowances on my own stuff when I moved out. As an example, I had a couch which had originally cost me over €2k. I kept the receipt, deemed it to be worth €800, and claimed €100 a year over 8 years. A reasonable approach in my view replicated across a number of capital items.


Same here, and revenue were happy as I asked them we left a bit more but it was accepted.


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