Hi folks, I never usually sell a property, but last year I sold a Pukekohe unit (basic brick 2-bedder) I'd held for 11 years. Was a little astonished at how much I have to pay the taxman, can anyone tell me if this looks about right? Bought for $160,000, sold for $360,000... Have to pay back depreciation claimed over the years of over $33,000.
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quick guess of numbers
purchased $160k
so maybe 80k building
2004 first year
to 2011 last year of building depreciation
So 7 years of depreciation, if straight line was 3% for most of period, so 2400 per year, *7 years = $16,800 approx.
So your $33,000 sounds a bit high!
If you have depreciated chattels, generally you wouldn't recover depreciation on these, as they do wear out. So should just be recovery on the building depreciation claimed.
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Ross Barnett - Property Accountant
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Originally posted by Rosco View PostSo 7 years of depreciation, if straight line was 3% for most of period, so 2400 per year, *7 years = $16,800 approx.
Originally posted by makanlah View PostUpdate: accountant made a mistake. Should have put tax on depreciation. That is only around $5000. Not the usual person who handles my returns.
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Originally posted by Wayne View PostCould be - not enough info really.
Hard to say if the person needs a better accountant or needs to be more in tune with what is happening.
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Sorry to hear of the bereavements and the comment wasn't meant to sound 'harsh'.
You do expect to be able to trust the experts you pay for but I have found I need to know enough to give everything a 'sniff test'.
You know the questions to ask your accountant now - mainly around what depreciation is being recovered (house or chattels).
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Check with your accountant:
Amount depends on claimed rate (SL 2%) or (DV 3%) and building value.
Guessing by 80k building - it looks too high to me as the book value of 80k shrunk by approx. 17k depreciation
= would estimate around 3k,
But the 5k could also be the result of a higher building value (120k)???
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The cost of depreciation recovery on the sale of a property is often quite a shock. But a good accountant would have discussed with you when you bought the property that in almost every case, claiming depreciation on buildings is just a timing thing. It's effectively an interest-free loan from the IRD, that you pay back when you sell the place.
It won't be a problem for properties purchased in the last few years, because IRD now refuse to let you claim it in the first place!AAT Accounting Services - Property Specialist - [email protected]
Fixed price fees and quick knowledgeable service for property investors & traders!
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Originally posted by Anthonyacat View PostThe cost of depreciation recovery on the sale of a property is often quite a shock. But a good accountant would have discussed with you when you bought the property that in almost every case, claiming depreciation on buildings is just a timing thing. It's effectively an interest-free loan from the IRD, that you pay back when you sell the place.
It won't be a problem for properties purchased in the last few years, because IRD now refuse to let you claim it in the first place!
Removing the depreciation from rental housing actually means - no wear and tear and rusty, leaky roofs have the same value as new once. Keeping a house in good working order costs nothing.
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Keeping a house in good order costs a great deal.
Depreciation used to offset these considerable costs.
So now a days - the rent has to go up more to pay, the home owner takes a bigger hit or the maintenance doesn't happen.
In reality - a combination of all three.
Even with great capital gains - cash flow will make or break you.The three most harmful addictions are heroin, carbohydrates and a monthly salary - Fred Wilson.
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Originally posted by Wayne View PostIt's the land that goes up in value
Now, with zero depreciation the book value is equal to the initial purchase price. If the house sells above the purchase price the next owner has a house with a higher “value”, right?
The problem here is to distinguish the reasons for the increase in value. Was it capital gain (just increased market value) or because that house has been upgraded (central heating, double glazing, new bath and kitchen) based on replacement value?
If “capital gain” would be treated as taxable income, my expectation would be that “all” improvements made on a house to be taken off the capital gain in the same way as developers can claim their building costs.Last edited by klauster; 25-06-2015, 01:12 PM.
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