Hi all,
As a result of fjficm’s post, I thought I’d better start a new thread to post my own question rather than continuing to detract from his post which is aimed at warning other investors of a dodgy QS.
As this depreciation thing is all new to me, I’d like to know:
If you found a good IP with all the right stuff (ie. location, size, price etc etc etc) however it was built before 1985, due to its limited depreciation benefits, do you pass it up??????
I find this difficult to comprehend, as I have never allowed the age of a building influence my buying. So what if it was built the same year I was born…..does that make it passé and to be avoided at all cost???? Man, lucky we don’t do this to people, otherwise I’d be on the scrap heap too!!!!! [laugh4][laugh4][laugh4]
Thanks in advance.
Jo
Hi Jo,
In short – no, if it is good buy then it is a good buy irrespective of its age, apart from any maintenance and inspection issues.
All purchases need to be evaluated on the fundamentals and any depreciation ‘benefits’ should be considered as being the icing on the cake, and not a part of the cake.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Thanks Derek,
Trust you to say the right thing!!! [specool]
I always thought as much, but the word “depreciation” has been thrown around so much lately, that it was giving me the false impression, that that was a major criteria when people were looking to purchase.
fjficm also mentioned properties he’d purchased that were over 50 years of age, but that had proven to be the best IP choices he made; so thanks for sharing that with me fjficm; my faith has been restored; I was beginning to think that people in here saw older buildings as investment “no no’s” [blink]
So thanks for setting me straight guys!!! [thumbsupanim]
Jo
hey Jo
You tellin me you 40+
No way man! I seen you pic and man
you are a real foxxy dudette!![inlove]
Is that your b/f? [glum2]Jo – never.
All houses we own are 40 years+. In fact in the midst of purchasing a house built in 1880!
A tax break has never been my motivation to purchase anything. As Derek said, they’re ‘icing’. I like property purchases to stack up without factoring in tax breaks.
ScottI dont buy for depreciation purposes.
I actually prefer to buy older places. I feel it works out the same if not better to buy an older place. When you buy newer you pay more anyway and for a worse position.
As an example. Lets say you can buy either.
1. An older 2 bed unit in Mentone – 18 kms from city. OR
2. A new 2 bed townhouse in Edithvale/Chelsea – about 22kms from city.In 5 yrs time both they will look similiar and the older one is closer to the city and therefore in a better position.
Thats how i look at it. Location is better than short term deprn benefits.
Thanks Anubis, Depreciator, Yack (good example)
I was pretty confident that people didn’t buy simply on that criteria, however as so much emphasis placed on it I was beginning to have my doubts!!
Depreciatior, one question if I may, I’m sure I read somewhere, that if you claimed depreciation each year, when it came time to sell, you were not entitled to the 50% discounted CGT rather you have to pay the full 100% is that correct??
Cheers,
Jo
P.S. Thanks Hotshot [blush2] but that is not my “b/f” boyfriend??? [blink] it’s my husband!!!
I buy post 1985/1987 places when possible. It depends upon affordability. It’s one of my new criterion when buying. I need tax breaks for taxable income and reducing CGT.
kay henry
Thanks Kay,
Maybe you can tell me though, okay you buy post 1985 for the tax breaks, but how does this help with CGT if there is any truth to the notion that by making “depreciation” claims each year, you have to pay the full 100% CGT when (if of course) you sell???
Or have I been mislead/misread (the article)???
Depreciator???? Anyone?????
Jo
Hi Jo,
Claiming depreciation does not affect eligibility for the 50% CGT exemption. What was the article?
ScottI personally doubt that about the CGT 100% thing. All new IP’s would be depreciated, and the 50% CGT rule doesn’t preclude any new house.
Anyhoo, I am paying CGT on a place I just sold, and will be depreciating the ones still in my possession to offset the CGT bill.
kay henry
Hi depreciator,
Can’t recall off the top of my head, although I have been reading the API magazine over the last few days, but I don’t think it was in there!!! I am almost certain I still have it, I will make it my mission to hunt it down, and get back to you. I guess it wasn’t a big deal to me at the time, so I dismissed it pretty quickly!!
Stay tuned….
Jo
My understanding is that any deprn claimed reduces the cost base when calculating the gain.
eg. Cost $200k
Deprn claimed during life of peoperty $10k
Selling price = $250k.Gain = $250k – ($200k-$10k) = $60k Gain.
Please correct me if I am wrong.
That’s it!!!
Thank you Yack, that is what I read, and in the API magazine???? but for some reason (i.e. perhaps the fact that I was in bed reading it at 2.30am) made me think it would affect the 50% exemption, rather than reducing the cost base.
Cheers,
Jo
P.S. See Yack, I always said you were a legend!!!! [specool][thumbsupanim]Further to Yack’s comment, it’s only depreciation on the building that impacts upon the cost base for CGT calculations. Depreciation claimed on the Depreciable Assets (fixtures and fittings) doesn’t come into the equation. In the first 5 years or so, depreciation on the Depreciable Assets is often greater than that on the building itself.
Now, here’s something surprising. Apparently if a property was purchased post May 13, 1997, and it is eligible for depreciation on the building, the amount of depreciation that could have been claimed has to be deducted from the cost base upon sale for CGT calculations even if it hasn’t been claimed.
Obviously this is in accountant territory and I’m not an accountant. I was speaking to an acountant last week. He’d just come back from an NTAA training day – the NTAA train loads of accountants. They mentioned this and apparently most of the accountant audience was gobsmacked. It’s pretty obscure. Can any accountants out there confirm?
Scott
I’ve heard that mentioned, but not in that exact detail Scott – ie the date etc.
Cheers
MelOriginally posted by depreciator:Now, here’s something surprising. Apparently if a property was purchased post May 13, 1997, and it is eligible for depreciation on the building, the amount of depreciation that could have been claimed has to be deducted from the cost base upon sale for CGT calculations even if it hasn’t been claimed.
Hi Scott,
My new accountant had heard this one too – he may well have seen the same ‘heads up’ notification.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
surely if you hadn’t cliamed it you would just adjust your returns to cliam it = 100% claim for the depreciation and only 50% assessed on the CGT. so it should all be good news?
Extensive list of ‘Off The Plan’ property available for sale in Perth.John – 0419 198 856
Originally posted by AusProp:surely if you hadn’t cliamed it you would just adjust your returns to cliam it = 100% claim for the depreciation and only 50% assessed on the CGT. so it should all be good news?
Hi John,
Sounds good in theory but you are only entitled to back date your last four tax returns whereas CGT can be calculated over a longer timeframe than this.
What is intriguing is that the ATO requires taxpayers to substantiate their depreciation claims via a QS or similar – I wonder how they will determine the depreciation that may not have been claimed?
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
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