Prepurchase cost, purchase doesn't proceed-tax deductible?

[artemis]

I'm thinking about things like legal fees, Council property/LIM reports, transport costs. Also, a family member does the early scouting for me - can I claim payment to him?

[graemeh]

Our accountant said yes when we asked him the same question about pre-purchase expenses for a purchase that didn't proceed. In our case it was a valuation and some legal fees.

The payment to a family member should also be legit but unless you are just covering their expenses they would need to declare it as income. I assume the amount you pay them also has to be reasonable for the work they have done

[drelly]

I don't think that all legal fees are deductible regardless of whether or not the purchase is completed... also, I'm pretty sure that valuations for raising a mortgage are not deductible.

[whitt]

ok from what i gather:

direct borrowing costs of loan are tax deductable on current year eg. mortgage registration fee, valuation etc

all other costs eg legals, lims, any works carried out prior to rental. are NOt tax deductable. However these costs can be added to total purchase cost and later then be used for the tax depreciation portion of tax return.

eg puchase price $150,000
Borrowing costs . valuation, mortgage registration fee etc $545
legals $1,000
The $545 is tax deductable
Where as the Total purchase cost is $151,000 and depreciated yearly.

most people only use the contract price for there depreciation schedules and not the full purchase cost missing out on extra money each year.

Anyhow just please check with an accountant also

[drelly]

Hi Whitt,

Have a look at publication IR264 - I've found it really useful: http://www.ird.govt.nz/library/publi...info/ir264.pdf

1. You can't claim depreciation on the whole purchase price of a property - only the building itself. You can't claim depreciation on the land. (p22)

2. You can't claim *all* the legal fees for purchase (p12 & 13). You can claim fees for arranging finance but not for the actual sale or purchase (weird!).

3. I was wrong on the valuation though - you can claim that (p12).

[whitt]

Try on page 13.

– the cost of repairing or replacing any damaged part of the property,
if the repairs or replacement make improvements to the property which
increase its value
– real estate agent’s fees and legal fees incurred as part of buying or selling
the property
– the cost of making any additions or improvements to the property.
However, you can capitalise the cost of the last three items, and claim
depreciation on them as part of the cost of the property.

which is what i was refering to. this new capitalised figure will form the basis for the new depreciation schedule total purchase cost.
which will be then split into land, bulding and chattels. The last two you are able to depreciate yearly.

[graemeh]

direct borrowing costs of loan are tax deductable on current year eg. mortgage registration fee, valuation etc

This is why you should discuss with your lawyer if it is worthwhile identifying on their bill what relates to conveyancing and what relates to financing. If you don't do this the accountants split it 50/50.

In some cases the finance related tasks exceed the conveyancing tasks.