Hi, I am in the first stages of finding a builder to build an investment property. In an itemized quote $3750 was allowed for ducted gas (it has evap for cooling 'free'). After speaking to heating installer he said allow for $4k to install after the property was built, but it should be nearer $3k. If I had the same gas system put in for the same price AFTER completion I thought I could claim the expense back on tax, which I couldn't do if it was built in the package. Is this correct.
Any advice greatly received.It depends on a few different things, so the actual amounts deductible may vary slightly, but that said.. you will be able to depreciate the cost of the item over a number of years regardless of when it is installed.
So whether its installed as part of the contract, or you pay for it seperately after construction is completed, you will be able to claim a tax deduction for it.. but you will not be able to claim it all in the year of expense. It needs to be depreciated over time (usually 8 years) and you claim a deduction for that depreciation. Best case scenario, you will be able to claim $1000 (pro-rata) in the first year, reducing to $0 over 8 years.
If its installed during construction, then after construction is complete you can get a quantity surveyor (depro or some such) to go through, assign value’s to everything, determine everythings useful life, and calculate a 20 year schedule of the total depreciation in each year. The depreciation on your heating system will be included in the schedule you receive. Depending on the contract and the quantity surveyor.. they may only depreciate the cost of the heating unit itself over 8 years, and the cost of the ducting etcetera as part of the building over 20 years. In that case the deduction for the heating system itself would be marginally less in the first year.. but you will catch it up over time.
Also (kindof unrelated but if I dont point this out.. someone else will) depreciating the item or the entire building will reduce/corrode your cost base for the purposes of capital gains tax.. so if you sell the property you may end up paying more in capital gains tax than you would have if you hadnt depreciated the building in the first place. but… if you do the math your still better off depreciating.
Mr501, thanks for clearing that up for me.
Will probably still depreciate as the property will be negatively geared, thanks for pointing that out, just one more thing to take into consideration.
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