sharetrader
Results 1 to 9 of 9
  1. #1
    Member
    Join Date
    Sep 2004
    Location
    Rakino Island, , New Zealand.
    Posts
    386

    Default To Claim on Depreciation of Rental Property?

    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?
    This stock shines so bright that it \"Bling Blings\"

  2. #2
    Junior Member
    Join Date
    Jun 2004
    Location
    auckland, , New Zealand.
    Posts
    5

    Default

    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

  3. #3
    Senior Member Halebop's Avatar
    Join Date
    Jun 2003
    Location
    New Zealand
    Posts
    1,172

    Default

    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.

  4. #4
    Member
    Join Date
    Sep 2004
    Location
    Rakino Island, , New Zealand.
    Posts
    386

    Default

    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.
    This stock shines so bright that it \"Bling Blings\"

  5. #5
    Member Snapper's Avatar
    Join Date
    Jun 2002
    Location
    Mt Maunganui New Zealand.
    Posts
    282

    Default

    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

  6. #6
    Senior Member
    Join Date
    May 2000
    Location
    New Zealand.
    Posts
    1,221

    Default

    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...

    Death will be reality, Life is just an illusion.

  7. #7
    Member
    Join Date
    Sep 2004
    Location
    Rakino Island, , New Zealand.
    Posts
    386

    Default

    Steve, you are right. It is hard to find a good accountant these days.
    This stock shines so bright that it \"Bling Blings\"

  8. #8
    Property Management rentex's Avatar
    Join Date
    Nov 2014
    Location
    Auckland
    Posts
    15

    Default

    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.

  9. #9
    -aholic
    Join Date
    Apr 2016
    Location
    in the cloud
    Posts
    80

    Default

    Quote Originally Posted by Bling_Bling View Post
    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?

    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
    Last edited by smtrader; 22-05-2016 at 06:33 PM. Reason: Added quote

Bookmarks

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •