Hi All,
I am looking at buying a 5 y.o. house as an IP. I prefer new for depreciation reasons, but they are rare in the areas I want to invest in.I have a fairly technical question about depreciation. I hope someone can help.
I want to know how the QS will value the property for depreciation purposes.
Will s/he look at what it would have cost to build the property 5 years ago and then knock 12.5% (2.5% for 5 years) off that and call that the value?
Eg estimated building cost in 2005 = $200k – 12.5% = $175k.
OR
Do I get to depreciate the whole $200k for the remaining 35 years?
Further, if the plant and equipment has never been depreciated (i.e. the property had never been rented before I bought it), can I fully claim depreciation on the P&E? Say an item of P&E has a 5 year life for depreciation purposes. Given that the house is 5 years old, does that mean the item is now worth nothing for depreciation purposes, or can I depreciate it over the next 5 years (i.e. it would be 10 years old when I had finished depreciating it)?
Am I making sense?
Rgds,
Jack
Jack
The original construction cost is available for depreciation at a flat rate of 2.5% for 40 years. So it starts to depreciate from the time it is completed for 40 years. You can get 35 years of that. But as it is a flat rate you get the same every year.
What you desribe is correct . if the cost was $200,000 you can claim $5000 per year on it. So 5 x $5000 is lost by the time you acquired it.
Make sense?
Regarding the plant and equipment, the effective lift of the item at the time of acquisition to you is used. So if the plant items are 5 years old but in very good condition, you can claim them from the time you acquired them at a value we would determine at the time of acquisition. It may well be the full effective life but they would start with a slightly reduced value.
2 issues – Capital is the cost of construction. Plant is the cost of acqusition.
Cheers
Hi Neil,
straight from the horse's mouth! Thanks very much.
Rgds,
Jack
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