Depreciation and demolition

[dionysus888]

If I was to purchase a property and rent it out initially I would get a QS report. I rent it for a year and gain the deductions. After this I decide to demolish the house. I assume that the residual value can then be written off against my income, is this correct?
Does the demolition of the original house have any impact on the cost base for CGT?

 

[DaleGG]

Originally posted by dionysus888
If I was to purchase a property and rent it out initially I would get a QS report. I rent it for a year and gain the deductions. After this I decide to demolish the house. I assume that the residual value can then be written off against my income, is this correct?
Does the demolition of the original house have any impact on the cost base for CGT?

Hi

You have a number of issues here . . . at the demolition of the house you trigger CGT and the deemed sale or disposal is at the market value of the house at the time of the demolition.

Yes, the residual depreciation available can be written off as a large tax deduction, but . . .

Let's say that the market value was $250k and the initial cost a year ago was $200k. At face value you have a $50k CGT excluding the stamp duty and legal fees in the inital purchase.

To add insult to injury, you would also include the depreciation already claimed to the CG as an "add back" which will increase the problem for you.

If nothing else, you will want a very conservative valuation of the house just to reduce your tax problem.

Dale