If you buy something like a rental property or a piece of machinery and it needs repairs, you can’t just claim those costs as an expense.
Instead, they may have to be added to the asset’s purchase price.
Here’s an example:
You buy a building, and during your pre-purchase inspection, everything looks fine. A year later, you discover the roof is leaking and some floor joists are rotten.
These issues weren’t obvious at the time of purchase and didn’t affect the sale price, so fixing them is tax deductible.
However, if the need for the work was apparent at purchase and reflected in a reduced price the expenses must be added to the cost. Also, if the building was usable to earn some sort of income but wasn’t able to be used for the intended purpose, you must add the refurbishment expenses to the cost.
The same goes for an existing business buying a car or piece of machinery that can’t be used until the work is completed.
Those costs aren’t deductible as expenses; they’re considered part of what you paid for the asset which may qualify for depreciation.
