Depreciation on furniture

[bkw319]

Can anyone advise whether depreciation can be claimed on furniture purchased with an investment property?

For example, a unit worth $120,000 is furnished by the former owner some 8 years after he purchased it with $10,000 worth of furniture such as tv, microwave etc etc.

If I purchase the property and furniture for $130,000 am i able to claim both depreciation on the building, fittings etc and the $10,000 worth of furniture?

 

[mross]

If the furniture is included in the purchase you can claim depreciation on it.

Michael

 

[geoffw]

This raises another question.

Usually, a purchaser would get a quantity surveyor to give an estimate of the value of the items, and to provide a depreciation schedule.

A friend has just purchased a property. Instead of hiring a QS, he itemised, before the purchase, what he thought the prices were. He then got the vendor to sign a receipt detailing the items and their values. The vendor was quite happy to do this- and, for some items, revised the price estimate upwards.

My friend got a much higher valuation than he would have had from a QS (as the vendor put in purchase prices), and his accountant told him that the receipt carries more weight than the QS report anyway.

Any thoughts from the accountants?

 

[Simon]

If I buy a property tomorrow and furnish it to let can I then claim depreciation on the furniture? Even if I buy second hand stuff?

Thanks

 

[mross]

If you buy furniture and use it in an investment property to earn income, you can claim depreciation on the furniture.

The value of the furniture will be what you paid for the furniture, but what you (Simon) are talking about is the effective life which determines the rate of depreciation.

So if I buy an old TV for say $500 and I expect it will last me two years I can make a claim to the ATO to "self assess" the effective life of the TV and claim the value of the TV over the two years. If you choose not to self assess, the standard ATO effective life rate will most likely be used.

geoffw - If there are receipts for the items the QS should use that information in preparing a report for the entire property. The amounts actually paid by the puchaser should always be used as the basis for preparing deprecitaion schedules. If they are not available for whatever reason, the QS should place a value on the items.

Michael - QS

 

[bkw319]

Many thanks Michael.

 

[geoffw]

Michael,

Sorry, I'm not sure that I made myself very clear.

If the QS had come in. he may have estimated, say, $10K costs- and depreciation reduced the present value of those to $5K.

But the purchaser now has a receipt from the vendor, saying that the fittings (furniture, carpet, stove, whatever) cost him $13K. And so he can start claiming depreciation on $13K rather than $5K.

It was built pre 1986, so building depreciation is not a factor.

 

[mross]

geoffw

Lets see if this answers your question:


When you purchase a property and furniture is already in the property a QS will revalue the furniture as a reasonable attribution of the purchase price. This means that regardless of the age of the furniture the opening value for depreciation will be virtually "as new" and depreciation will start again from scratch. This is because furniture is classed as a "depreciating asset" - not building.

If the furniture was sold separately the QS will simply apportion the purchase price of the furniture over each item. If there is a receipt it is simply proof that the furniture was paid for and how much was paid, this makes the QS job easier and often un-necessary if being done separately to a property purchase.

Is that what you meant?

Michael

 

[Lukey13]

More depreciation questions...

Just bringing up an old thread to answer a question of mine...

I've purchased my first IP which is a fully-furnished and self-contained CBD unit. The furniture package is probably about 3 years old.

In order to maximise my claimable depreciation, should I:

* Ask the seller for original receipts of the items and have a QS estimate current value based on these? or

* Ask the seller to sign a receipt for the furniture to use this price with the QS? or

* Just get the QS to take care of it all...


Secondly, is it possible to purchase say a new plasma TV, depreciate it for tax for a year or so and then remove it from the IP and retain it for my own private use? What would be the most tax effective way of doing this?

 

[redsquash]

In my extensive dealings with National QS................2 in total,
The QS report has always been generous in its estimates.who am I too query this?

 

[Aimjoy]

Just get the QS to take care of it all...

Yes, this one.

Secondly, is it possible to purchase say a new plasma TV, depreciate it for tax for a year or so

Yes, it can be depreciated for tax purposes while being used at the IP

and then remove it from the IP and retain it for my own private use?

At this point it changes use and if being used privately by you then you are no longer entitled to claim a tax ded. for depreciation.

What would be the most tax effective way of doing this?

Of doing what? Removing it from the IP? Use your own transport as the trip will not be tax deducible.
The most tax effective way of doing anything is to not have private use of it at all.

Aimjoy

 

[stirling]

It should be noted that a high written down value of furniture as a part of purchase price will reduce your cost base for CGT and therefore increase CGT paid. It is swings and roundabouts, reduce tax now by depreciation or reduce CGT paid when sold.

 

[depreciator]

It's pouring in Sydney - no painting today. Might as well check my emails etc.

Depreciation claimed on furniture (and stoves, carpet etc) has no impact on the cost base when calculating CGT. The building write-off does, however.

Scott

 

[stirling]

you misunderstand.

a) Purchase price = $180,000 land/building + $20,000 furniture

b) Puchase price = $200,000 land/building + $0 furniture


a) and b) has same cost for purchaser, but different cost base for CGT.

Best to go for b) then prepare depreciation schedule

 

[Lukey13]

Of doing what? Removing it from the IP? Use your own transport as the trip will not be tax deducible.
The most tax effective way of doing anything is to not have private use of it at all.

Aimjoy

What I meant was, is it possible to set the effective life of a TV for a shorter period of time, say 2 years, and depreciate it fully over that time before converting it to private non-depreciable use?

 

[depreciator]

If you had an Asset in an IP that for some reason was subject to an unusual amount of wear and tear, then you would have a case to use a shorter Effective Life.
Let's say you have a pump in a bore and your water is particularly harsh on the pump. In that case you would probably be justified in nominating a shorter Effective Life.
Or you may have carpet on the floor of a demountable in a mining community (not sure why you would) and the carpet got regularly trashed because the tenants (miners) never take their boots off. In this case, a shorter nominated Effective Life might be warranted.
I'm just speculating about these, but you get my point.
So you would have to prove that your TV somehow suffers more wear and tear than normal. Not sure how you'll manage this.
Scott