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  1. #1
    Join Date
    Jul 2003
    Kapiti in New Zealand

    Default Do you have to recover depreciation?

    The quick answer is no. The sale of some rental properties will NOT result in any depreciation recovered.

    Depreciation recovered relates mainly to the building part of the rental property. A building is normally depreciated at 3% using the dimishing value method. The cost price less any depreciation is called the book value.

    1) If a building is sold for more than its book value, then some depreciation will be recovered. The maximum depreciation recovered is the total of depreciation previously claimed on this building.
    2) If the a building is sold for more than its cost, this is called capital gain and for a non tainted person (not a trader) is tax free. Obviously will still recover depreciation.
    3) If a building is sold for less than book value, this is a capital loss and not deductible.

    When a rental property is purchased, it goes up in value over time. Then when sold, accountants and tax payers often believe the property as a whole has increased in value substantially, therefore they must repay all the depreciation.



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