Hi Everyone,
I have managed to find a property constructed in 1987 that falls into the 4% depreciation bracket that looks pretty good numbers wise. I would ask my Quantity Surveyor this question, but he is on holidays at the moment, so thought I would open it up here.
Lets say the building cost $100,000 to build in 1987, will my building depreciation be:
a) 4% of the 100K, or
b) 4% of what is left of its depreciating value over the last 17 years, or
c) 4% of some other valueAny input would be most appreciated.
Thanks,
StephenHi Stephen,
You will find that the depreciation schedule for the building cost using your example of 100K in 1987, begins in 1987. As the on paper value of the property is depreciated to reach zero in 25 years @ 4% or zero in 40 years @ 2.5%. So you have around 8 years of depreciation left. This is also something to consider in your projected cash flow for the property. Yes 4% is good initially as it increases your cash flow however the amount of time these properties (1985 to 1987) have left to claim the building write off is reducing. And you don’t want to miss out on that write off in the future!
Cheers
WillHello Stephen,
You will also find that 4% depreciation is allocated only to holiday or tourism accomodation. Some buildings have a combination of both, however, you may want to speak to your financier as a precaution. Banks generally dont like serviced or leasehold apartments.
David Femia
Femia Property Group
Property Investment Consultants
http://www.femiapropertygroup.com.auThere’s a “window” between 1985 and 1987 where the depreciation rate for normal rental properties is 4% over 25 years. Whereas those built after 1987 are 2.5% over 40 years. You are correct though in that holiday and tourism accomodation is all at 4%.
In answer to the original question the depreciation will 4% of 100k for the next 8 or 9 years. (check with your accountant/QS)Rod.
$100,000 construction cost back in 1987 would be a substantial size property. Be careful not to over estimate what you think the property cost to build back in 1987.
Construction prices have gone up incredibly since then.
Sounds good though.
Petters
Well I bought the property (settled 2 weeks ago) and got the depreciation schedule back. The building cost came in at $83K, and this year I get a $4K depreciation allowance (not bad for having only had it for 3 weeks before the end of financial year), next year it is close to $10K and goes down from there each year onwards.
After tax, this will be $1K per year +ve cashflow. Not much, but appreciation will be good.
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