To Claim on Depreciation of Rental Property?

[Bling_Bling]

Is it worth claiming on depreciation of the house on your rental property? It seems that the depreciation I claimed during the ownership as a rental I have to pay it back when I sell it. So why claim on depreciation in the first place when you have to pay it back?

[pearljam]

Because it is basically an interest free loan. It means you can have the money back to reinvest now and you just pay this back when you sell. Obviously with inflation as well the money is worth more today.

It does work better if you are applying a buy and hold policy as you'll never have to suffer the clawback.

Some investors state the depreciated amounts on the s & p agreement when they sell meaning that they don't have to pay the recovery back. This can make it harder to find a buyer of course though

[Halebop]

quote:Originally posted by pearljam

Some investors state the depreciated amounts on the s & p agreement when they sell meaning that they don't have to pay the recovery back. This can make it harder to find a buyer of course though


Unless the buyer is a developer it will usually break the deal.

Agreed that claiming the depreciation allowance is a legitimate tax deferral programme and deferring paying something is always more profitable.

It often amuses me though how loudly people complain when they come to sell and the money they have to pay the "bloody government!". They seem to forget this is the money they didn't have to pay over a number of consecutive years and which they subsequently earned additional compounding returns on.

Bling Bling: If you keep good financial records it's worth keeping a "deferred taxation" line in your balance sheet so you are always aware what the tax deferral is worth. ...and just remind yourself this amount would have had to be paid much sooner otherwise.

[Bling_Bling]

Interesting, thanks guys. My accountant usually takes care of all my financials. Just had a shock when I sold some rental properties and found that I had to pay back all the tax on depreciation. Nevermind, gotto give some back to the government.

[Snapper]

Another advantage of claiming depreciation is if you are on a high tax rate now you might be on a lower tax rate when you sell and have to pay tax on the clawback

[Steve]

quote:Originally posted by Bling_Bling

Interesting, thanks guys. My accountant usually takes care of all my financials. Just had a shock when I sold some rental properties and found that I had to pay back all the tax on depreciation. Nevermind, gotto give some back to the government.


Perhaps your accountant could have explained the tax implications at the start when you first purchased, so that it was not such a shock later on when you did sell[?]

A GOOD accountant should do more than just take care of your financials, they should take a more pro-active approach so that there are not any shocks...

[Bling_Bling]

Steve, you are right. It is hard to find a good accountant these days.