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We had a house destroyed in the Canterbury earthquakes 2011 which had $110,000 depreciation against it. Our accountant at the time transferred the liability onto our replacement property we bought with the insurance proceeds which didn’t come through until a few years later and we sold the land then too when we realised the payout wasn't enough to rebuild it. The Rates valuation at the time of the replacement house was building value $115k so it started off in our tax as book value $4k after the depreciation from other property was applied.
Our daughter has just bought the replacement property off us and the valuation she had on the property said the valuation is mainly the value of the land (Its a 1920s house on inner city site). The buildings it has as $70k. (We didn’t get a similar valuation when we bought it in 2016 as we paid cash so didn’t need mortgage.) The current rates valuation says it is $20k.
We have also done $30k work on it like coloursteel roofing, replacing driveway, spouting, underfloor insulation that wasn’t claimed as expense or depreciated in our tax return which would have added to the building's value.
I’m doing our tax return and was expecting to report the depreciation recovered as income this year but I read if you can prove the capital gain is due to land value only you might not need to? So do we need to declare it if the value now is less than the improvements value when we bought it? (Our area is currently undergoing building boom with high density apartments so land is worth more with house removed.) Or do we compare with the $4k book value we started with after the transferred depreciation from the destroyed building?
We have also done $30k work on it like coloursteel roofing, replacing driveway, spouting, underfloor insulation that wasn’t claimed as expense in our tax return which would have added to the building value. How do we account for that?
Can anyone give me a formula please?
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