I was told that depreciations claimed on building costs (a) will be deducted from the purchase price when selling but not other depreciations (b) . It doesn’t make sense to me!
Oops! I should minus (not add) $9000 depreciation of building from the cost base. Thanks Michael,
Other depreciations = fittings like Carpet, kitchen appliances, security system ….
We spent $7000 for carpet, blinds and have claimed depreciations for them every year. Can we still add the $7000 to the cost base?
We claim bank fees (= $1000, from $20,000) over 5 years. (1000/5 = $200/year or $400/2 years). Should $400 be deducted from the cost base since I’ve already added $20,000 to the cost base?
Because we only get $400/wk rent, after paying for agent fee, rates … it’s not much left! We are in red even after claiming depreciations for building & fittings. From the below calculations, after 2 good years in property market if we sell the property we will get $21,664 from $70,000 increase in value.
I keep thinking is it worth all the worries? Should I sell it & do something different? We have to prepare for bad times as well.
Have u checked on those selling fees? I don’t know of any agent that will sell a property for $500k and only charge $10k commission – or did I misunderstand. I know of someone who recently listed a property for $239k and will pay about $8k comm.
We haven’t decided to sell our IP yet. When we bought it the agent gave us higher estimates for rental & depreciation claims. He did not even include deductions of building depreciation from the cost base after keeping the IP for 10 years. The IP has been negative geared. We rely on claiming tax on depreciations to make up a part of its loan payment. In the peak market our IP value has increased by 7.5%/yr. We won’t expect the market to perform the same in the next few years! Our IP requires some increase in value to break even. When we bought it we planned to keep it for a long time but with its low rental returns and a little bit better understanding about CGT I think I should reconsider options.
$10,000 for commision was only my rough estimate. I forgot to ask the Agent about his selling fee when I talked to him last time.
I’m still not clear about effects of Fixtures & Fittings costs at selling time (or although Michael expained it clearly but I still hope it should NOT be like that). Our IP was new when we bought it. We claimed depreciation for carpet & blinds together with other F&F in the last 2 years. We paid $7000 for carpet & binds before renting it out. If we can’t claim back $7000 or the remain of that amount (minus $ claimed for depreciation) when we sell the IP it’s not FAIR at all. I’m confused because if the builder put in the carpet/blinds & sold the property to us for $7000 more at that time this amount is already included in the cost base.
It makes me wonder what could happen to house renovations! If we put in $50,000 to renovate an old house (build a new kitchen, with new appliances, new barhroom, new carpet, new paint) I know we can claim depreciation but if we sell the house soon after renovating can we claim anything back at selling time? What if after paying $5000 for new carpet & claiming its depreciation for 3 years and the tenant badly damages it which needs to be replaced, what can we claim?
We had a similar situation buying a beautiful apartment on the gold coast, with the original intention of living there.
It was very much negatively geared and what makes these places even more expensive is body corp fees (almost 7000 p.a. in our case). We sold at break even point, when we decided to stay in Melbourne.
i think to hold this sort of property with the continuing expectation of similar capital gains that have been is a risk. this is not a given!
If prices start to level out or even drop, its these sorts of properties that get affected first.
Stay with in average or low averrage price range, growth area, cash flow neutral-positive if you can.The sort of thing 80% of the population can afford!
i now tend to avoid anything that looks like body corp, it significantly adds to overheads and is not in keeping with my invest. strategy.
R/E agents charge 2.5 to 3% commission, don’t forget hefty advertising fees.
I think if something has been depreciated, it cannot be included in your cost base at sale, that would be double dipping.
I have been following this thread with great interest as I learn more about the “art” of investing in real estate. I think I have followed this through successfully but if you could make a new thread and walk through the example again with the original numbers and final correct calculation formula I would greatly appreciate it.
I hope to see your new topic soon. I’ve been reading from different sources to have a better understanding about tax claims on depreciation & their effects on the cost base at selling time but so far so … clear as mud! It’s not unusual that each taxman can give us a different answer.
Laurie, I agree with you on the $600 fee issue, but disagree with all your depreciation calculations.
Michael (Michael & Kaye)
What you have since come to realise is what I was trying to demonstrate.
When you purchase an IP, the depreciable items are effectively removed from the purchase price to establish a cost base, and the written down value of those depreciable assets on sale is added back to the cost base.
eg House & land $200K Including F&F of $20K
Cost Base = $180K + Purchase costs not expensed.
Held for 3yrs and depreciation of $9K claimed in those 3 years.(leaves a WDV of $11K)
Sold for $260K
Excluding Purchase costs not expensed, Sale costs not expensed and Div 43 Capital Works prev claimed (if applicable), Cost Base is therefore $191K.
Capital Gain is $69K (adjusted by those other items).
Can someone please confirm info from Laurie? ATO & M Lomas’ book have left out this type of depreciation from their calculations for capital gain.[?] [] []
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