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?
To Claim on Depreciation of Rental Property?
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22-12-2004, 02:26 PMBling_BlingTo Claim on Depreciation of Rental Property?
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22-12-2004, 02:48 PMpearljam
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 -
22-12-2004, 03:58 PMHalebopUnless the buyer is a developer it will usually break the deal.Quote:
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
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. -
23-12-2004, 08:59 AMBling_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.
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31-12-2004, 12:26 AMSnapper
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
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31-12-2004, 12:05 PMStevePerhaps 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[?]Quote:
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.
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...
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06-01-2005, 06:46 PMBling_Bling
Steve, you are right. It is hard to find a good accountant these days.
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22-05-2016, 06:40 PMrentex
Good points in this thread.
Even though the building depreciation rules have changed, it is still generally wise to claim chattel depreciation. Good to discuss with your accountant and look at a chattel valuation when purchase. -
22-05-2016, 07:25 PMsmtraderQuote:
Originally Posted by Bling_Bling
I might be wrong id have to check the up to date details, but lets say im 99.9% confident that im right, that the depreciation on chattels, does not have a claw back, meaning it will not be taxed back on income statement when you come to sell the property.
The clawback is only in relation to depreciation on the FIXED HOUSE VALUE prior to i believe it was 2011? or maybe 2010.
Back then, you could depreciate 2% i think of the house fixed cost (good times huh haha).. well yes if you didn't have a great accountant you would've thought so, until when you came to sell.. because all that amount you depreciated back then, will need to have to be recorded back on the income statement as INCOME.
But for the chattels, its a different story, the chattels are expenses in the year and that's the end of it. You just can't possibly claw that back into income statement at a later year, because the depreciation is based on use, in other words, the wear and tear etc.. when you sell the house the wear and tear on chattels is NOT going to magically disappear.
So in answering back your question, id say your sale is based on holding the property for a while now that you had depreciation from way earlier.. but if you are asking (going forward for other properties) about whether you should depreciate chattels, as rentex said, yes why would you not, it decreases your income(rent) that is taxable? .. infact you cant not to, these are based on accounting standards that have to be done.
PS. just realised this is an old old post. my bad:D