Inputting of property & depreciation values

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From: Peter Boyce


Hi all

I have seen previous posts regarding the method of assessing new unit developments whereby the land value is input into the property price and the building cost is input into the renovation area to provide a total 'cost', however, my question is this....when inputting the relevant depreciation values into the program what values do you actually use?

The reason I ask is that if a property has a sale price of say $265K, being made up of $55K land and $210K units complete (turfing, gardens, driveways, carpets, curtains etc etc) then for depreciation purposes only the building can be depreciated which is worth say $170K. This leaves (265-55-170) $40K for all of the turfing, carpets etc.

When I try to change the building depreciation amount in the non-cash deductions area to say $170K it automatically changes the loan amount which throws everything out of whack.

Peter

 

[WebBoard]

Reply: 1
From: Webmaster (Somersoft)


This represents an interesting challenge, but you will find that it is still possible to simulate it in PIA. The simplest solution is to include all of the costs in the property price but then to adjust the stamp duty to that of the land price only (use the Stamp Duty calculator under the Calculator Menu). Then it's simply a matter of specifying the amount applicable for building depreciation (exclude landscaping and site preparation) and the fixtures and fittings depreciation schedule. For capital gains tax and building depreciation purposes, it is important that specifications for renovations/capital improvements be restricted to those items that are eligible for building depreciation. If needed, there is provision for an "Additional loan" in the Loan and Outlays dialogs to cover such items that are not specified explicitly.

A potential problem may arise when the project takes some time to complete (say several years). In this case it is possible to specify the capital improvements in the appropriate year they are made, but things such as the costs of landscaping would have to be included at the outset in the initial cost base as there is no provision in the program (at the moment) for non-depreciable improvements in later years. While this might be seen as an accounting deficiency, the CGT calculations would be correct and it should make little or no difference at all to your investment decisions.