Can someone explain to me exactly how depreciation works. I’m confused some people say it is a great tax DEDUCTION whilst others say it is a tax DEFERMENT mechanism.
I know how you trat depreciation in your set of accounts and how it is a very powerful tool to turn negative cash flow into positive or positive into even more positive but does it catch up with you eventually? perhaps when you sell?
I am looking more at commercial but I think, whilst the formula’s may vary, the rules would be the same for residential.
I appreciate any advise.
Thanks
Neil]
Just think of depreciation as an outgoing, like interest, rates, management fees etc. Yes, commercial is pretty similar to residential. When it comes to CGT, only residential benefits from the 50% discount. In regards CGT, when an asset is sold, depreciation claimed on the building only i.e. not the depreciable assets, is subtracted from the cost base. Your accountant may tell you that even if depreciation on the building ISN’T claimed, it still has to subtracted from the cost base. Lots of investors use depreciation for cash flow. Smart investors put the money they claim in depreciation into something like a sinking fund for the upkeep of their property. I don’t do this.
ScottIt does not matter whether the property is residential or commerical the CGT 50% discount applies if the property is held for more than 12 months and is not held in the name of a company. Accordingly, any depreciation reduction in the cost base only has half the effect. If you have a commercial property that is being used in your business you may also qualify for the 50% active asset CGT discount in addition to the normal 50% CGT Discount.
Julia
Originally posted by depreciator:Smart investors put the money they claim in depreciation into something like a sinking fund for the upkeep of their property. I don’t do this.
ScottHmmmmmm – Scott = not a smart investor?[biggrin]
Derek
[email protected]Read my comments? Think I can help you? PM or email welcome.
Nope, not very disciplined either. But very successful – must be luck.
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