Tax- when property sold under LAQC

[steiffing]

Can anyone explain what sort of tax involved when we sell the property under LAQC ownership?

Ive been told that because we are getting tax benefit all the years (negative gearing)...if say after 5 years when we sell the property and we make say 100k...then we have to pay all those tax benefit back to IRD? Is this true?

My understanding is that there is no capital tax on property we sell (as long as we are not trading houses actively (a trader) or being tainted for doing so in the past), there is no tax to pay!! And the tax benefit occured throughout the years really is not into our pocket but into the banks >.<...thank you for all your help!!

much appreciated!!

[lidistick]

You have to pay back any depreciation claimed during the 5 years.

[steiffing]

so thats means if we dont claimed for depreciation then theres no tax right!!

[lidistick]

I believe so.

[SuperDad]

so thats means if we dont claimed for depreciation then theres no tax right!!

Wrong.

All that follows from the fact that you elected not to claim depreciation is that there will be no depreciation clawback on sale.

Whether the proceeds from the sale are taxable as income is an entirely seperate matter.

Out of interest, why didn't you claim depreciation. (And did you specifically elect not to, or simply fail to do so?)

Also, why sell now?

Paul.

[dandan]

No tax to pay as your intention at purchase time was never ever to sell.

Your circumstance has now changed as your are feeling great stress from the ownership of this property. You you have heard from Kerien Trass that interest rates will soon be 15% and from Bernard Hickey that house prices will drop 30% and take 10 years to return to their current value, and you believe the ressession will turn to depression. How could you have predicted the international credit crises. You have been waking up in cold sweats and have experienced heart pulpertations.

I would recommend you have some drinks with friends and laugh about old times. Sell your property and avoid cardiac arrest.

Or maybe you brought the property with a plan to sell it for a proifit in five years. Maybe you thought that you would keep it for ever but just might sell it in the near future for a quick buck.

You are a bad man and will have to pay tax on the profit, but as all the shares of your LAQC are in the name of your wife, her lower tax bracket will minimise the tax owing.

[Glen]

No tax to pay as your intention at purchase time was never ever to sell.

Your circumstance has now changed as your are feeling great stress from the ownership of this property. You you have heard from Kerien Trass that interest rates will soon be 15% and from Bernard Hickey that house prices will drop 30% and take 10 years to return to their current value, and you believe the ressession will turn to depression. How could you have predicted the international credit crises. You have been waking up in cold sweets and have experienced heart pulpertations.

I would recommend you have some drinks with friends and laugh about old times. Sell your property and aviod cardiac arrest.

Or maybe you brought the property with a plan to sell it for a proifit in five years. Maybe you thought that you would keep it for ever but just might sell it in the near future for a quick buck.

You are a bad man and will have to pay tax on the profit, but as all the shares of your LAQC are in the name of your wife, her lower tax bracket will minimise the tax owing.

???????......aaalllrrriightty then!?

[essence]

Unfortunately, just because you haven't claimed depreciation, doesn't mean to say that it won't be clawed back.

The IRD have this really neat loophole that they can claim back depreciation you would've claimed, had you claimed it, even though you didn't claim it.

Fortunate for them, unfortunate for you.

See an accountant and get them to sort this out for you. It's not worth trying to sort this out yourself. The amount of time you spent trying to wade through xxx years, will easily be validated by the accountant doing his job.

[roseneath_rat]

Essence is right I believe, if you are not planning to claim depreciation you need to inform the IRD ahead of time, otherwise at sale they can assume that it has been claimed and claw it back anyway.

[charley6]

pay back depreciation

Are you sure that is only for 5 years that you have to pay back. I have just sold two properties that I had owned for around 12 years and had to pay back all the depreciation that had been claimed.It took the gloss off it but I knew in advance about it.If you dont claim you dont pay back.

[steiffing]

Thanks everyone!!

Ive actually just sat up my LAQC and bought first IP under its name not so long ago, so I havnt really decided to claim the depreciation or not which I believe has to be decided at your first annual tax return form.

The question only arose when this friend of mine whom had been buying IP long time but never sat up LAQC or special tax code (since his IPs are either cash posititve or neutral) so he believe when running IP on negative gearing the tax benefit will be taken back by IRD at the time of the sale of the property which seems a bit unresonable and different from what Ive been known!!

I know depreciation claimed can be asked back by IRD but never know about the profit can be as well but now I know he is wrong. In the mean time Im not planning to sell (since I really just bought it) but thinking add another one into my protfolio!!

[CJ]

You are a bad man and will have to pay tax on the profit, but as all the shares of your LAQC are in the name of your wife, her lower tax bracket will minimise the tax owing.

Corporate tax rate is 30%. The tax bracket of the shareholders is only relevant for losses.

[CJ]

The IRD have this really neat loophole that they can claim back depreciation you would've claimed, had you claimed it, even though you didn't claim it.

I would argue that not claiming it it the tax return is the election not to claim.

[essence]

I would argue that not claiming it it the tax return is the election not to claim.

Not true. I can't find the relevant IRD booklet but the IRD clearly states that you must declare in writing that you are not going to claim depreciation and you must decide before the first tax return for that particular property/company is lodged.

By not declaring, it means either one is stupid or lazy or both.

You can argue all you like with the IRD. They however have deeper pockets, longer memories and vindictive staff, who will implement their rules until you are broke. Ask Dave Henderson of "We are here to help" book, which btw I highly recommend to everyone to read.

For steiffing

The question only arose when this friend of mine whom had been buying IP long time but never sat up LAQC or special tax code (since his IPs are either cash posititve or neutral) so he believe when running IP on negative gearing the tax benefit will be taken back by IRD at the time of the sale of the property which seems a bit unresonable and different from what Ive been known!!

Just because someone has been in IP a long time, does not mean that they have been doing it correctly. It just means any mistake they have made, just gets bigger - and bigger - and bigger.

... but never know about the profit can be as well...

One pays tax on PROFIT, absolutely nothing wrong with that. That's why one is in business, not for negative gearing BUT FOR PROFIT, whether that is reached tomorrow, next year or in 50 years time.

For charley6

I have just sold two properties that I had owned for around 12 years and had to pay back all the depreciation that had been claimed.

Whilst there is no "The IRD will only re-claim depreciation after xxxx years" rule, 12 years seems like a long time. May pay to check on that.

If you dont claim you dont pay back.

Untrue, see previous posts.

[roseneath_rat]

I had a property that was rented, but was planning to move into it within 2 years myself, and remember having to write to the IRD to tell them that I was not going to claim depreciation. Wasn't worth the hassle for unwinding it 2 years later. I'm afraid essence is right on this one.