All Topics / General Property / Depreciation

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  • Profile photo of VaslavVaslav
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    @vaslav
    Join Date: 2003
    Post Count: 86
    May 8, 2004 - 4:12 pm

    hi,

    I remembered in Steve’s book there’s a mention that Depreciation is only a tax deferral, why is that so? How does it works ? Do you pay back when u sell the house what u have depreciated?

    Kev

    There’s no Such thing as No Can’t Do!!!!!

    Profile photo of woodsmanwoodsman
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    @woodsman
    Join Date: 2004
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    May 8, 2004 - 10:29 pm

    Kev,

    A very basic example

    Buy IP: $300k
    Sell IP: $400k
    (held for over 12 months)
    Depreciation claimed: $20k

    CGT liability assessed on = $400-$300+20k = $120k

    Bear in mind, that when you include back the depreciation amount, it is nominal terms. Not indexed, so effectively, if you hold a property for 10 years from today, the benefits you will receive will be more in real terms (given inflation & interest rates).

    In addition, it also assists in servicing a property which will give you long term capital gain.

    Hope this helps

    James

    Profile photo of CastleDreamerCastleDreamer
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    @castledreamer
    Join Date: 2003
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    May 15, 2004 - 11:49 pm

    Here’s another thought, if you sell the house and include the depreciated prices of the chattels in the contract, then the depreciation shouldn’t be added back on as it is now ‘real’ value in that it has been acknowledged in the contract. Therefore the growth must have been in the land not the chattels/house. Can someone please explain depreciation clawback and how to minimise it legally, a little better than I have done here please.
    CD

    CastleDreamer

    Profile photo of depreciatordepreciator
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    @depreciator
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    May 16, 2004 - 1:21 am

    Not quite James.

    There is a fair bit of confusion around depreciation. It’s divided into to 2 main components: the building (=Special Building Write-Off or Division 43) and Goods and Chattles (=Fixtures and Fittings or Depreciable Assets).

    It is only the depreciation that has been claimed on the building that reduces the cost base in the event of CGT.

    Regarding written down value of assets, CastleDreamer. I’ve never seen a residential contract that has this included. Commercial property ones generally do. It’s not difficult, but you’d probably have to guide whoever prepares the contract through – the average solicitor may need assistance.

    Scott

    Profile photo of woodsmanwoodsman
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    @woodsman
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    May 16, 2004 - 6:48 am

    Thanks for clarifying Scott.

    James

    Profile photo of Steve McKnightSteve McKnight
    Keymaster
    @stevemcknight
    Join Date: 2001
    Post Count: 1,763
    May 16, 2004 - 9:44 pm

    Hi,

    Please see: https://www.propertyinvesting.com/depreciation.html

    Bye,

    Steve McKnight

    **********
    Remember that success comes from doing things differently.
    **********

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

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