New - Need Depreciation Info?

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From: GJC -


Hi - I've been into Jan Sommers books (& others)for some time but new to this Forum. Looks like some good info happens here so I've joined.
We currently have 2 investment properties running with a neutral cash flow and are just
about to go hunting for the third. To date I haven't got a good handle on the post July 85 @ 4% & Sept 87 at 2.5% depreciation deal. Can someone fill me in on the detail with these (I have the ATO booklets on Rentals & Depreciation but they aren't too specific either)

All the recent property investment research I've done to date certainly indicates that the building depreciation on properties purchased, that have been built since these periods, is the KEY part of any property investment strategy.

Now, the question is,…… as an example, if I buy a house now that was built in say 1986 and only been used as a normal residential dwelling to date;
1. Does the 4.5% depreciation allowance apply to the building component of the purchase once I use it as an IP??
2. If so, does it apply to the "Cost of Construction" at the time OR to the Valuers
apportionment of the building value at present?
3. What is the evidence needed to satisfy the tax office that the building qualifies as being "commenced" after these dates above? Building application to council or what??

Thanks
Garry
 
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Reply: 1
From: Les .



G'day Garry,

Welcome aboard - and, as the owner of 2 IP's, congratulations on joining the top 4% of the population (can't remember where I read this - Jan's book perhaps?).

Garry says> All the recent property investment research I've done to date certainly indicates that the building depreciation on properties purchased, that have been built since these periods, is the KEY part of any property investment strategy.

Les>> Sounds like what a developer or marketer would tell you as they sign you up on a new place. But consider this:-

A 1986 property's construction cost might realistically be $25k (what were properties selling for back then - in the area you are searching? ...then subtract the land value ....). Thus, you are entitled to claim 4% (or $1000) per year on which you would get back $485 in Tax. But, if you ever SELL it, this Depreciation is then added on to your Capital Gain before calculating Tax. Helps in the short term somewhat - maybe.

For houses built after Sep87, this drops to $625 per year on same building cost, but for 40 years.

And, I believe that this "capital allowance" is only claimable for 25 years (if 4%), STARTING at 1986 - thus, as a rental IP today, you can continue to claim it until 2011. So, if you buy one THIS year, you can only claim that allowance for 10 years (or 25 more years at 2.5% if constructed after Sep87).

A "key" - well, maybe - but give me a discounted purchase price in preference ;^) It's a bonus, but it would not be a "major" consideration for me.


Garry says>> Now, the question is,…… as an example, if I buy a house now that was built in say 1986 and only been used as a normal residential dwelling to date;
1. Does the 4.5% depreciation allowance apply to the building component of the purchase once I use it as an IP??

Les>> Yes - see above - and any FURTHER capital costs (e.g. re-roofing, new patio) since 1986 are also claimable (probably at 2.5%). But note the restrictions above.


2. If so, does it apply to the "Cost of Construction" at the time OR to the Valuers
apportionment of the building value at present?

Les>> At the time - and the timespan is limited too (see above).



3. What is the evidence needed to satisfy the tax office that the building qualifies as being "commenced" after these dates above? Building application to council or what??

Les>> A Council Search will usually turn up this info. A Quantity Surveyor 'might' be able to get around this if the Council can't turn up the required info.

Garry, as usual, take NONE of the above as gospel - I 'think' I am right, but I'm not an accredited person, so take it as my opinion ;^)

Regards,


Les
 
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