Depreciation Question

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From: Cornflower !


I have recently renovated an old house - my accountant tells me that the only tax break I get from this is that the money spent on renovations gets added to the purchase price when I sell the property, therefore reducing my capital gains (and cap gains tax) on the property.

Is this the case? Is it worth getting a quantity surveyor in as these renovations are new?

Any help would be appreciated!

Julia

 

[Rolf Latham]

Reply: 1
From: Rolf Latham


Hiya Julia

Not a tax expert but I suspect your ac is right.

The philosophy is that your are bringing the property back to what it would be if it were in good nick.

I have heard that one way of getting around this somewhat is to have a tennant in the dump before you do the renos. That way at least some can be regarded as repairs and thereby provides some immediate tax relief.

ta

ROlf

Rolf

 

[duncan_m]

Reply: 2
From: Duncan M


>I have recently renovated an
>old house - my accountant
>tells me that the only tax
>break I get from this is that
>the money spent on renovations
>gets added to the purchase
>price when I sell the
>property, therefore reducing
>my capital gains (and cap
>gains tax) on the property.

Your accountant is correct, but you could depreciate an extension over 40yrs.

Additionally, if you've purchased various tools to do the renovations (and future renovations) then you can depreciate these tools over their effective life, you'll need to keep a log book if they are part private and part business use however..

Additionally if you've used part of your own residence as a place of business (shed?) then
a portion of your costs of having your home(based on floorspace) can be deducted. Beware the increased CGT if you sell your home however..

An important point to remember is that depreciation is the recognition by the legislature that you will eventually need to replace some assets as they wear out.. If you never replace the asset (ie if you sell it) then your Capital Gains tax will be increased in order to claw back the depreciation you've claimed..

Seek the advice of a good accountant.. I have no advice on how to find a good accountant however..

Duncan.





Duncan.