Sale of Property

[foss]

I'm going into uncharted territory and selling one of my properties that has a low yield.

I must confess wasn't totally diligent in retaining past dialogue (must be getting older!) as to what was the most effective method to minimise depreciation recovered.

Seem to recall 2 main differing opinions:
1) stating net book value of chattels and building on S&P - I don't think this works?
2) getting a new chattel valuation and compring to previous? Not sure how this quite works either as when I got my original chattel valuation they largely "allocated" the cost of items rather than what might cost for a letterbox or such like. So if similarly done on more recent higher value no benefit?

Thoughts?

thanks

[buxlo122]

Basically the higher the Chattel value the more you will pay in depreciation recovered.

The chattels should be valued at market value.
Often if valuation is not done or is not practical to do one your accountant will use the net book value of the assets.

The best option in terms of trying to minimize depreciation recovered is to try and get a valuation that is on the lower end of the spectrum.

[olliestyles]

1. Ask your accountant whether you need to state the value on the S & P, but you will need to get a valuation to support your claim
2. Get a friendly valuer to value the chattels and building as low as possible (but still within reason) *cough*, box of beer, *cough*

[Dean@Massiveaction]

Providing you are selling to non investor you can put in the S&P that the vendor and purchaser agree that the value of improvements is $XXXX

Providing that isn't a ridiculously low number that works fine.
Ollie's advice re accountant is good also. IF you have depreciated a lot then you just may have to pay some of it back :-)

[foss]

thanks Dean, will look at book values and see how realistic, sounds simple solution.

I just thought I read somewhere there was a prob with doing that way as not a "true valuation".

Heard of one guy who did similar, but stuffed up by picking up wrong column and putting original cost price in. Ouuch

[Rosco]

Hi Foss,

Values in the sale and purchase agreement can really help. This idenitfies the legal selling price for these items. It also makes it easy for your accountant when doing the books, as they don't have to think about or work out the sales values(should save them time, so save you money). Also make sure your accountant gets a copy of the S&P, with the values pointed out.

The valuation etc is helpful to back up the values in the sale and purchase agreement if necessary. But they don't necessarily have to be the same, just as long as the values are realistic you should be fine.

For example, if a valuer valued my pen at $1, but I sold it to you for $1.25, then it is obviously really worth $1.25 as that is a legal sale. If I sold it to you for $0.10 then it would seem unrealistic and maybe tax avoidance if a tax benefit was gained.

I would personally
- write in the book values of chattels in the S&P agreement as starting point. If realistic value is less, I would include this and keep some basic notes on why. If the book value is unrealistically low, then I would put in a higher realistic value. Maybe take some pictures as evidence.
- If you want to be very safe, get another chattels valuation at point of sale, and use these values in the sale and purchase agreement
- For building I would look at the book value, any valuation and the rates value. If the rates and valuation for the building is way above original cost, then there is no point playing around, and you will recover all building depreciation. If the rates and valuaton for the building are below original cost or close to it, then you can play around a little bit. You don't have to put the exact same figure as the rates or valuation, but I would write in a slightly lower figure, but not too unrealistic.
- Obviously if you get a building valuation, you want this to be as low as possible.

Ross

[foss]

thanks Rosco and all, very helpful

[foss]

one further point - where in the S&P do you put the values? is it a specfic clause if so what's the best suggested wording?

worked out my building book value is 12k less than RV. Is that too low to get me in trouble?

[Rosco]

$12k isn't much on a building, especially if $200k or $300k.

I would add a seperate clause in the sale and purchase agreement.

Chattels and building value; the parties agree that the building and chattels are sold/purchased at the following values
Building $
Curtains $
Carpet
.....

Ross