To Depreciate --OR-- Not To Depreciate !!!

[888Katone]

We have a 2 bedroom IP that we are claiming depreciation on for blinds, airconditioner, etc. The IP was built in 1998 and as such I don't think qualifies for depreciation of Capital Works, yet I've read from another famous property investor that you should be able to claim depreciation on the IP asset (ie, the 2 bedroom unit ... but not the land). Obviously, 2.5% can get us an additional $2.5K at tax time. Is this true ?

I think the depreciation (if allowed as above) also reduces the cost base for the purpose of Capital Gains Tax. Is this true ?

 

[kegger]

This an idea we toyed with for a while and they paid a reputable quantity surveyor to do a proper report - they found about $3k depreciation that I didn't think existed. Better left to the experts......you then send the report to the accountant and they take care of it. The reports are about $500.

It does affect CGT when you sell but I'm not sure how - if you are selling the one would assume you are making a lot of cash and a slight adjustment due to depreciation probably wouldn't matter a great deal.

I just googled 'Quantity Surveyors' and it came up with the main Australian firms, which I have used and been very happy with.

 

[twobobsworth]

It does affect CGT when you sell but I'm not sure how - if you are selling the one would assume you are making a lot of cash and a slight adjustment due to depreciation probably wouldn't matter a great deal.

The depreciation you claim reduces your cost base. You claim a deduction now for your depreciation, but you will pay a greater CGT when you sell.

Example here http://moneymanager.com.au/investing/guides/articles/wealth16.html

 

[yo yo ma]

I contacted Scott from Depreciator who did a great job for me. Maybe send him a PM or email?
Steve

 

[WashingtonBrown]

We have a 2 bedroom IP that we are claiming depreciation on for blinds, airconditioner, etc. The IP was built in 1998 and as such I don't think qualifies for depreciation of Capital Works, yet I've read from another famous property investor that you should be able to claim depreciation on the IP asset (ie, the 2 bedroom unit ... but not the land). Obviously, 2.5% can get us an additional $2.5K at tax time. Is this true ?

I think the depreciation (if allowed as above) also reduces the cost base for the purpose of Capital Gains Tax. Is this true ?

Funnily enough i wrote an article titled the same about 10 years ago!

Before web days so not on our website.

Anyway - -your property WILL qualify for the building allowance.

If you tell me the purchase price and location i can give you a ball park or contact us next week.

Regards

 

[Pushka]

And you may as well depreciate, because I understand that even if you haven't claimed it in your tax return, when CGT is calculated, it will be added anyway!

 

[LynnH]

Pushka is correct - it will be added to the cost base regardless of whether you have claimed it or not.

Cheers
LynnH

 

[stargazer]

Hi all

I am happy to be corrected but i think the Building depreciation being 2.5% or 4% depending on which criteria from the ATO it fits comes off the cost base.

Fixtures and fittings etc don't.

Cheers
BC

 

[alexlee]

Depreciation is always good, even if it decreases your cost base (and therefore increases CGT) when you sell. Why? Because:
1) You get a benefit of your marginal rate x depreciation now. When you sell, you only pay CGT at half your marginal rate of tax. You might also sell when you no longer work, and therefore have a very low tax rate.

2) You might sell in 20 years. So you get, say, $300 (from $1,000 depreciation) now back on tax, and have to pay $150 TWENTY years from now. That's assuming you pay the same rate of tax in 20 years. Time value of money says that you're MUCH better off.
Alex