Thank you for visiting us.
This is conspi public relations.

This time, it was distributed on CONSPIRIT's official channel on YOUTUBE.Episode 38: Boost your quality of life with real estate management!I would like to send you the contents.

Today's topic is a brief explanation of "repair costs" and "capital expenditures."

The difference between "repair costs" and "capital expenditures"

If you are a property rental owner, you may have been troubled by this difference when filing your tax return.

When construction work is carried out on a revenue-generating property, should it be expensed as repair costs, or should the construction expenditure be recorded as an asset and depreciated, since it represents an increase in the value of the building?

Naturally, being able to process the expenses all at once as "necessary expenses" for that year will generally have greater benefits, as it will lead to a reduction in taxable income.

In order for something to be treated as a "necessary expense" here, it must be "construction costs to restore it to its original condition."

In other words, work to "restore" defects that have arisen due to aging or other factors, or damaged parts, to their original condition, is considered "repair costs."

In contrast, repairs and improvements that increase the value or durability of a fixed asset are considered "capital expenditures."
In this case, it becomes a depreciable asset and is accounted for according to the useful lives set by the National Tax Agency.

Criteria for determining "repair costs" and "capital expenditures"

If you are still unable to make a decision even after reading the explanation so far, I would like to introduce the generally accepted criteria for making a decision.

① If the amount spent on one construction project is less than 200,000 yen, it is considered "repair costs"

② Even if the expenditure is over 200,000 yen, if the construction cycle is three years, it is considered "repair costs"

③Even if the expenditure is less than 200,000 yen or does not fall under the approximately 3-year cycle,
"Repair costs" are costs for the maintenance and management of fixed assets and restoration to their original condition.

④ When the useful life of a fixed asset is extended or its value increases, it is considered a "capital expenditure."

⑤ If you are unable to make a decision after looking at ① to ④, if the expenditure is less than 600,000 yen, it is "repair costs"

The above is the general standard.

Summary of "repair costs" and "capital expenditures"

Capital expenditures are also known as "CAPEX," and although there is a large expenditure in a given year, they have little impact on taxable income reduction, so they also carry the risk of significantly eroding cash.

Some companies actively recommend "renovation" for income-generating properties, but when considering the cost-effectiveness, even if extensive interior work is done, the increase in rent will be limited, and if it is treated as a "capital expenditure," it could have an impact on cash flow.

If you are an owner of a used property and are thinking about repair work, it is important not to think about the work in isolation, but to consider whether the cost can be expensed as "repair costs" or whether it constitutes a "capital expenditure."

Learn about real estate management

If you likeConspirit official channelPlease also take a look.
Please subscribe to the channel and give us a high rating!
Well then, it was Conspi PR!