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We are about to sell 3xIPs and I have some questions about the clawback of depreciation on sale.
1) When I originally purchased the IPs I had full chattels valuations done on purchase and since then I have been depreciating everything at the standard IRD rates. To avoid paying any clawback can I assume that each chattel's value is its book value? Or do I have to get a full chattels apportionment of market value done on sale? It would seem logical that I could just use the book values as these are what IRD (by using their rates) say the chattels are now worth. - This would imply that the increase in the property is in the land and (possibly) building structure.
2) Where a gain is made on sale the IRD publication IR260 states that you pay tax on the lesser of “the total depreciation that could have been deducted since the asset was purchased or first used in the business (this amount relates to the allowable depreciation deduction rather than the amount of depreciation actually deducted)...”
My question is about “allowable depreciation” Obviously this means that the clawback is not on the depreciation that I have actually claimed (e.g., because in some years I might have not claimed at all I was entitled to), but on what I should have claimed. But how do I calculate what this “allowed depreciation” should be. Is this allowed depreciation worked out using the SL or DV methods? Because it if was worked out using the DV method, then it would be a greater amount and the clawback on sale would thus be greater.
3) One of my IPs was bought before 1993. I notice that in this case, the rules say that the depreciation must be claimed at the ‘historic rates’ i.e., 2.5% using the SL method. My question: is the depreciation to be 2.5%SL only for years prior to 1993 or is that the rate I have to use right up until this year when I sell the building?
Any help would be appreciated.
1) When I originally purchased the IPs I had full chattels valuations done on purchase and since then I have been depreciating everything at the standard IRD rates. To avoid paying any clawback can I assume that each chattel's value is its book value? Or do I have to get a full chattels apportionment of market value done on sale? It would seem logical that I could just use the book values as these are what IRD (by using their rates) say the chattels are now worth. - This would imply that the increase in the property is in the land and (possibly) building structure.
2) Where a gain is made on sale the IRD publication IR260 states that you pay tax on the lesser of “the total depreciation that could have been deducted since the asset was purchased or first used in the business (this amount relates to the allowable depreciation deduction rather than the amount of depreciation actually deducted)...”
My question is about “allowable depreciation” Obviously this means that the clawback is not on the depreciation that I have actually claimed (e.g., because in some years I might have not claimed at all I was entitled to), but on what I should have claimed. But how do I calculate what this “allowed depreciation” should be. Is this allowed depreciation worked out using the SL or DV methods? Because it if was worked out using the DV method, then it would be a greater amount and the clawback on sale would thus be greater.
3) One of my IPs was bought before 1993. I notice that in this case, the rules say that the depreciation must be claimed at the ‘historic rates’ i.e., 2.5% using the SL method. My question: is the depreciation to be 2.5%SL only for years prior to 1993 or is that the rate I have to use right up until this year when I sell the building?
Any help would be appreciated.
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