# Rental property and allowable costs against tax



## Susie2017 (25 Nov 2020)

A question from a relative who has a 3 bed property rented for many years. In 2017 he did a big interior refurb, mostly done by a handyman who's final bill was about 20k a lot of that was labour including full interior paint with some supplies included in the 20k e.g wooden floor, replacement worktop, kitchen doors etc. Extra costs on top of this included tiles for kitchen, bathrooms and hall, new bath, sink units for bathrooms, paint, curtains, mattresses, electric shower, attic insulation, new toilets, dishwasher, light fittings, skip hire, etc etc. All in all the refurb costs came to around 32k. When the accountant looked at all the figures he only allowed just over 7k against the rental income for that year which was substantially lower anyway as the property was vacated for 5 months during its transformation. He noted this year on his tax return that only c. 200 euro is being allowed against tax for expenditure over the 8 year period. When he queried it the accountant said the remainder would be used against CGT when the property is sold. He is only starting to reflect on this now but is concerned that he should have gotten more written off at the time. He also feels it is unlikely that he will sell the property and will pass it on to one of his kids. Should he query this further ? Does it sound about right ? Sorry I dont have full breakdown of costs but the whole house was revamped internally without adding any extension.


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## Sarenco (25 Nov 2020)

We had a fairly lengthy debate last year on this subject -





						New bathroom tax deductible question
					

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.



					www.askaboutmoney.com
				



There are shades of grey on this topic but the assessment of your relative’s accountant doesn’t look obviously wrong.


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## Sarenco (25 Nov 2020)

BTW where you see “************” on the linked thread, that’s the forum software blocking out the word “en_hancement”.

It’s an anti-spam device!


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## Bronte (25 Nov 2020)

Except for the dishwasher everything is repair/replacement. Clear as day to me. Take pictures. And get a better accountant.

I’d really love a detailed list of what the accountant put in the various categories.


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## Sarenco (25 Nov 2020)

Bronte said:


> Except for the dishwasher everything is repair/replacement. Clear as day to me. Take pictures. And get a better accountant.


What a ridiculous comment!

How could you possibly know whether many of those expenses constitute repairs as opposed to improvements?

The accountant presumably has the full facts - you definitely don’t.

And in what universe do new curtains and mattresses constitute repairs!


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## moneymakeover (25 Nov 2020)

I agree with Bronte. Entire amount should be tax deductable.
The goal of the refurb, as I understand it is to _renovate_ the property. 


Now _if_ the purpose was to turn a 300k property into a 1m property that _not_ allowed. 
Eg I buy single unit. Add on 5 more units. Try to claim relief on the construction of 5 as rental relief.
From Revenue website,
Not Allowed:
capital expenses on property improvements unless allowed under an incentive scheme

But my understanding what the OP is describing is not so much improvement but renovation. Upkeep. Otherwise rented properties would become slums. 
I think Revenue Commissioners and government want rented properties to be maintained. And thus the relief on refurbishment.


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## Susie2017 (25 Nov 2020)

Ok. So you guys basically think that most of this expense should have been allowed in 2017. Why did the accountant suggest leaving it til property sold ? Everything was renovation. Paint, flooring throughout. New kitchen doors and worktop. New bathrooms throughout. New electric shower. New carpets, beds mattresses, curtains, curtain poles etc. Is there any point in following it up at this stage ? Why would he have allowed so little? It seemed odd at the time but he uses this accountant every year. He thought about it again this year as accountant had forgotten to claim several years of tax relief on a income protection plan despite having been asked about it years ago. Is it possible to get a second opinion on that years return ?


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## Sarenco (25 Nov 2020)

moneymakeover said:


> The goal of the refurb, as I understand it is to _renovate_ the property.


The "goal" of the refurb is irrelevant.

What matters is whether the expenditure constitutes repairs/maintenance (which is deductible for income tax purposes) or whether the expenditure constitutes an improvement/en_hancement (which is deductible for CGT purposes).


Susie2017 said:


> Why did the accountant suggest leaving it til property sold ?


Because the accountant obviously took the view that a large proportion of the expenditure constituted capital improvement/en_hancement.

I'm afraid some other posters are offering you some pretty wild advice.  It happens.

Your relative is paying his/her accountant for advice.  Any advice offered on here is remote from the facts and there is no reason to believe that the accountant's advice is wrong on the basis of the limited facts that you have provided.


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## Susie2017 (25 Nov 2020)

I have read through the other thread linked above and it seems a controversial topic. The majority of the works would have been classified as renovations for wear and tear. I assume new kitchen appliances would be capital allowances. I suppose attic insulation or an electric shower in an ensuite would be an enhancement. But those were small cost items in light of the overall expenditure. He has no recourse now anyway - I presume. Is the potential future CGT portion recorded somewhere with revenue or are you relying on the accountant to have the breakdown of costs on record 20 years down the road if he decides to sell up ?


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## Sarenco (26 Nov 2020)

Susie2017 said:


> Is the potential future CGT portion recorded somewhere with revenue or are you relying on the accountant to have the breakdown of costs on record 20 years down the road if he decides to sell up ?


No, it’s up to your relative to keep receipts, etc.


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## Bronte (26 Nov 2020)

Sarenco said:


> What a ridiculous comment!
> 
> How could you possibly know whether many of those expenses constitute repairs as opposed to improvements?
> 
> ...



I know because been there done that.  The mattesses and curtains are replacements.  The only stuff I put under the 8 years deprecation are the likes of white goods, furniture.  I've also a 100 euro limit. Anything under that I am not wasting my time, my accountants time and revenue's time with depreciating a 30 euro kettle over 8 years.  When I get audited revenue can argue with me, like you do, on how bad a tax payer I am for not depreciating a set of 50 Euro curtains over 8 years. 

Currently I have one property in major, and I mean major need of a refurb. I received a horrendous quote from a builder to do it, need to start from scratch as the tenants have 'let it go'.   It costs way more as they would have to be in situ so I decided against it.  When the tenants leave, of their own volition I'll do the refurb then. New kitchens, pull out the shower rooms, paint job, new electics, and with an eye on the new regulations.  Sure that 'enhances' the property.  In one sense. But in reality all I'm doing is putting it back to the position it was in when after buying it I did a major job (that I put against CGT) 

Tell me Sarenco how did you decide a 50 Euro set of replacement curtains is 'improvements'?


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## Bronte (26 Nov 2020)

moneymakeover said:


> I agree with Bronte. Entire amount should be tax deductable.
> The goal of the refurb, as I understand it is to _renovate_ the property.
> 
> 
> ...


Exactly MMO.  That's why when I first bought a propety for x, put in y to bring it to value z, that's enhancement.  Clearly CGT.  Couldn't see any other way of viewing it. But later, as you do, you have to replace/renew/renovate, that's not enhancement.  It's renovation.  Us landlords are doing this constantly.  Sometimes it's just a paint job, a replacment boiler, a new electic shower, but other times it's a major renovation. Which is what the OP has because she said it had been rented for 'many years'.


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## Bronte (26 Nov 2020)

Susie2017 said:


> Ok. So you guys basically think that most of this expense should have been allowed in 2017. Why did the accountant suggest leaving it til property sold ? Everything was renovation. Paint, flooring throughout. New kitchen doors and worktop. New bathrooms throughout. New electric shower. New carpets, beds mattresses, curtains, curtain poles etc. Is there any point in following it up at this stage ? Why would he have allowed so little? It seemed odd at the time but he uses this accountant every year. He thought about it again this year as accountant had forgotten to claim several years of tax relief on a income protection plan despite having been asked about it years ago. Is it possible to get a second opinion on that years return ?


As I already said to you, you friend needs a better accountant.  Especially now you've told us about him forgetting to claim something ! Like there's alarm bells twice now.  Anyone can forget something, it happens to the best of us, but 'several years'.  Do you know how much the accountant is paid?


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## Bronte (26 Nov 2020)

Susie2017 said:


> I have read through the other thread linked above and it seems a controversial topic. The majority of the works would have been classified as renovations for wear and tear. I assume new kitchen appliances would be capital allowances. I suppose attic insulation or an electric shower in an ensuite would be an ***********. But those were small cost items in light of the overall expenditure. He has no recourse now anyway - I presume. Is the potential future CGT portion recorded somewhere with revenue or are you relying on the accountant to have the breakdown of costs on record 20 years down the road if he decides to sell up ?


There is a revenue expert on the other thread. Mandelbrot.  

You keep receipts for 6 years according to revenue.  Me, I keep receipts forever.  But I do an excel so I have a summary.  I can't be remembering what enhancement or refurb I did 2 years ago never mind 20 years ago. In my case 20+ years ago.


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## Bronte (26 Nov 2020)

Sarenco said:


> I'm afraid some other posters are offering you some pretty wild advice.  It happens.


My advice is not wild.  It's factual and based on vast experience and knowledge.


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## Susie2017 (26 Nov 2020)

Ok. Accountant is paid 600 per year.


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## Sarenco (26 Nov 2020)

Bronte said:


> My advice is not wild.  It's factual and based on vast experience and knowledge.


I respectfully disagree.


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## Sarenco (26 Nov 2020)

Bronte said:


> Tell me Sarenco how did you decide a 50 Euro set of replacement curtains is 'improvements'?


I didn’t make any such decision.


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## Bronte (26 Nov 2020)

Sarenco said:


> And in what universe do new curtains and mattresses constitute repairs!



I specifically wrote repair*/replacement. * 

But it doesn't matter since you think my advice is 'wild'.


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## Sarenco (26 Nov 2020)

@Bronte 

Capital allowances can be claimed on the cost of furniture and fittings in a property. That would include curtains, mattresses, white goods, etc.

The cost of replacing these items is not deductible as a repair (whatever about your personal "rules").

Your advice on this thread is wild because it is offered without having all the facts.  You can't state definitively that a particular expense relates to a repair, as opposed to an en_hancement, without having all the facts.


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## Susie2017 (26 Nov 2020)

Got some figures from relative. Will round them up slightly as dont want to post exact amounts. From e mail received from accountant - Repairs 7950, capitalised allowances 2150 and en_hancement 5800. But this leaves over 16 k that was spent largely doing repair / equivalent replacement missing from tax return. He has gotten figure of 266 under capital allowances in 2019 return so that would make sense for the allocated capital allowances. Any ideas what is going on...all receipts add up to over 32k. Is there any explanation for this ?


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## Sarenco (26 Nov 2020)

Susie2017 said:


> Is there any explanation for this ?


Did the accountant have all the receipts?


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## Susie2017 (26 Nov 2020)

He went through old emails and found one from the accountant stating there was 18k entered by the handyman under the HRI scheme. Would this have accounted for the missing expenditure ? Where is HRI documented in the tax return? And is that amount then not allowed /excluded from repair costs?


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## Sarenco (26 Nov 2020)

Susie2017 said:


> Would this have accounted for the missing expenditure ?


No, the HRI scheme allowed landlords to claim an additional tax credit for repairs, renovations and improvements to a rental property.

I really think you need to figure out what receipts your relative gave his accountant.


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## Susie2017 (26 Nov 2020)

He gave in several pages of each item purchased by himself right down to curtain hooks! There was also a long detailed invoice from the handyman which gave n an itemized list of work done and costs for each room of the house. He will certainly be looking into this further.


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## Susie2017 (26 Nov 2020)

Accountant has written back to say ' it is within our power to relook at how we treated aspects of the work I.e repairs vs enhancements that have improved the value of the property' . Asked if review could be left until after 10th December, presumably because he is busy ....


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## Sarenco (26 Nov 2020)

Susie2017 said:


> it is within our power to relook at how we treated aspects of the work I.e repairs vs enhancements that have improved the value of the property'


But your problem doesn't seem to be the classification of expenses - it's the fact that €16k isn't accounted for one way or the other, no?

Mind you, I'm struggling to understand why this wasn't picked up at the time.


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## Pmc365 (26 Nov 2020)

Please forgive my ignorance but one would have thought the Revenue Commissioners would have clarified this in a concice guide giving examples of most scenarios by now.

I recently hired an electrician to replace a shower in a rented property. Can this be written off in one tax year or over 8 tax years or is it considered to be only a write off against CGT.


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## Susie2017 (26 Nov 2020)

Yes I agree. About 16k is not claimed in any manner it would appear. It's quite unsatisfactory. He took accountants figures for granted at the time but after talking to another landlord with a lot more properties recently realised that something was amiss. Trusted accountant completely that he was doing the right thing.


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## Sarenco (26 Nov 2020)

Pmc365 said:


> I recently hired an electrician to replace a shower in a rented property. Can this be written off in one tax year or over 8 tax years or is it considered to be only a write off against CGT.


That sounds like a repair (assuming a like-for-like replacement, allowing for technological advancements) that can be deducted in calculating your taxable profit for the relevant tax year.

To your broader point, there is no detailed Revenue guidance of the type suggested.


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## Susie2017 (28 Nov 2020)

Accountant replied by e mail to say that when doing the 2018 return he arbitrarily split the expenditure 66:33 as if would be difficult to justify 32k on the property without having enhanced the building. He says he can adjust this now. He states he treated 20k as en_hancement to the building at the time. The rental income for the 2018 was 13 k. But the accountant ended up using s 23 against the rent instead, but surely the rent would have been better off offset against the
expenses of 32k whilst preserving his s 23. Any thoughts.


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## torblednam (28 Nov 2020)

Susie2017 said:


> Accountant replied by e mail to say that when doing the 2018 return he arbitrarily split the expenditure 66:33 as if would be difficult to justify 32k on the property without having enhanced the building. He says he can adjust this now. He states he treated 20k as en_hancement to the building at the time. Any thoughts.



(Leaving aside the fact that the numbers still don't add up...)

In other words, he just couldn't be bothered (and / or would struggle to get paid for) taking the time and effort to schedule the expenditure and apply some rigour to apportioning it between repairs & renewals, and en_hancement.


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## Susie2017 (28 Nov 2020)

He gets paid promptly every year for doing the return. This years invoice was settled within 48 hours. The amount of expenditure was 32k. The house had fallen into disrepair and had v little work done on it for 20 years. What would you say to this accountant if you were in this position. Individual had full trust in accountant but has no recollection of agreeing to leave 20k as en_hancement. It was all itemized in detail to him.


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## jim (28 Nov 2020)

Seems very lazy and possibly a bit incompetent on the part of the accountant.


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## Susie2017 (28 Nov 2020)

Will revenue query this on an amended return. There will be little gain for him apart from overpayment of USC. Just restoration of around 20k of s23. He took accountants word for the way it was handled at the time but did feel it was odd not to get more on the repairs when so much had been spent. He is not an accountant so didnt overly question it at the time.


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## Sarenco (28 Nov 2020)

Your numbers are still very hard to follow.

Is the split something like this -

Furniture & fittings - €2k (seems low)
Repairs - €8k
Enhancements - €20k

It would obviously be worth going through each expense item, on a line-by-line basis, to see if everything has been appropriately attributed.

However, you may well find that the accountant’s crude allocation is not way off the mark, particularly if the property hadn’t been upgraded for 20 years.


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## Susie2017 (28 Nov 2020)

There was only 2 k worth of white goods/window blinds.
Expenditure on materials by owner- 13500k, assorted receipts - everything from paint, numerous B+Q receipts, bathroom suites, new electric shower
Bill from handyman - 18 k, included new kitchen, lot of labour e.g painting entire house inside, tidying garden, powerwashing outside, filling skips x2, fitting bathrooms, fitting kitchen, some electrical works, all interior tiling (hall, kitchen, bathrooms x2 etc), fitting attic insulation etc. 
Total cost around 32k. Like for like basis, but obviously with some modern embellishments like bathroom cabinets etc. 
Should he ring revenue to discuss ? before signing off on new return ?


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## Sarenco (28 Nov 2020)

Susie2017 said:


> There was only 2 k worth of white goods/window blinds.


What about the mattresses and light fittings?


Susie2017 said:


> Should he ring revenue to discuss ?


I think he needs to have a discussion with his accountant - or perhaps instruct another accountant.

Fitting attic insulation and filling a skip clearly aren't repairs. 

Installing new a kitchen and bathroom suites (to include tiling work) doesn't sound like repairs to me but I'm sure others will disagree.

On the other hand, painting, gardening and powerwashing are clearly repairs/maintenance.

I doubt the handyman broke down the cost for each item of work on his invoice so there is probably an element of judgment as to what proportion relates to repairs and what proportion relates to enhancements.


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## Susie2017 (29 Nov 2020)

I get that there are grey areas here. I would argue that the bathroom works were repairs. Lot of mould so ceilings needed replacement. Tiles cracked. Grout falling out. Cracked toilets and bath. Defective shower door. Extraction fans not working. This is all like for like and necessary maintenance. Also as someone mentioned mattresses, roller blinds curtains should be included under the capital section but were not. There seems to be a lack of interest by the accountant in delving into the detail as suggested above. Its disappointing. Any point in directly speaking to revenue ?? The owner does not want hassle down the road.


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## torblednam (29 Nov 2020)

Susie2017 said:


> I get that there are grey areas here. I would argue that the bathroom works were repairs. Lot of mould so ceilings needed replacement. Tiles cracked. Grout falling out. Cracked toilets and bath. Defective shower door. Extraction fans not working. This is all like for like and necessary maintenance. Also as someone mentioned mattresses, roller blinds curtains should be included under the capital section but were not. There seems to be a lack of interest by the accountant in delving into the detail as suggested above. Its disappointing. *Any point in directly speaking to revenue ??* The owner does not want hassle down the road.



Not really, the system is self assessment so he's entitled to change his return. If he wants to avoid hassle the owner just needs to change accountant, and be prepared to possibly pay a bit more elsewhere to get a better service (although possibly not, as people sometimes unwittingly pay a pretty penny for incompetence).


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## Sarenco (29 Nov 2020)

Susie2017 said:


> I would argue that the bathroom works were repairs. Lot of mould so ceilings needed replacement. Tiles cracked. Grout falling out. Cracked toilets and bath. Defective shower door. Extraction fans not working


Ah, replacing damaged or broken items on a like-for-like basis are certainly repairs.  But you didn't give us that level of detail previously.

Bear in mind that ultimately it's your relative's tax return.  The accountant is only an agent and you should only expect a fairly basic level of service for €600pa.


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## Susie2017 (29 Nov 2020)

Ok he has two rental properties. From speaking to him most years there are only a few figures going in; Rental income, management co charges, mortgage interest, Gas boiler service and insurance. Not much else for the last ten years or so, bar a very odd miscellaneous item or respair. I thought 600 would cover the sums involved fairly adequately. But I stand to be corrected.


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