Advice on depreciation

[maloriopolium]

Hi,

I have heard that depreciating is a double edged sword and that you should only be depreciating assets in your investment property if you plan on replacing them at some stage. But what does this exactly mean?
For example, if I depreciate a fridge, when do I need to replace it? And what happens if I never replace it? Or what happens when I take the fridge and use it for myself?

Can someone explain this as I don't quite understand.

Thanks.

 

[Pushka]

I don't understand it either. If you are able, you are crazy not to depreciate, and replacement has nothing to do with it. If it breaks down, and your lease allows it, there is no need to replace it if you dont want to.

 

[inv99]

Deprecation is allocating the cost of an asset over its useful life.

Most things will last a lot longer than that.

For example a computer you can depreciate at 33%. So after 3 years you cant write off any deprecation for it, but you still can use it and it's perfectly fine to.

All it is is basically accounting for wear and tear. You should always do it where possible as it's an expense you can include for tax purposes, but don't actually need to physically pay, so you are saving yourself tax by doing it.

 

[bernardp]

Depreciation being a double edged sword most likely refers to the fact that you must add back the depreciation claimed upon sale of the property. This is common when claiming division 43 (construction) costs on the property.

Once you sell the property, the depreciation must be added back to come to the final capital gain/loss calculation.

Cheers.

 

[Reality Cheque]

My accountant tried to talk me out of depreciating because it is a double edged sword. But I figure I need the extra cashflow now not when I sell in 20-30 years time if ever.


RC

 

[Pushka]

These days the construction depreciation is added on by the ATO whether or not it is claimed. I suspect the Accountant doesnt want to do the hard work. Scott (Depreciator), where are you?

And of course, if you never sell then that is even more reason to use it.

 

[Reality Cheque]

Don't worry, I'm armed with a Depreciator schedule this year. My accountant can either step up or step out.


RC