I was under impression that you can claim expenses to renovate (say you re-did the bathroom) on investment property. Sure it goes through depreciation schedule wherever relevant.
However, at the time of selling, for capital gains tax I was told they essentially put all your your claim back essentially negating it.
Something along that lines.
Is this correct or do I have misinformation?
This is for NSW
I see. What is the rough maths.
Say it cost you $30,000 that you can depreciate over 10 years. Do you effectively got say 30% benefit $9,000.
So what happens when you sell after that 10 year period.
Do you need to give 50% of $9,000 back?
I'm not an accountant
But the amount u claim needs to be reduced from your cost base so it makes your capital gains higher. From that u calculate your cg
In order to claim a depreciation you'd need to get a depreciation schedule from quantity surveyor (eg bmt)
It depends on your yearly taxable income.
And, also Value of money NOW and WHEN you SELL. $1 now is not same as $1 in 10 years.
Your accountant doesn't seem to be explaining things related to your investment property very clearly. Maybe get a new accountant..
Yes, totally this. I've never been in a position to 'negatively gear' anything so I'm not in the know/loop, but isn't this a classic example of where it could come in handy, re tax?
Even if you’re not negatively gearing, it still minimises tax paid on income by claiming costs of managing the property.
You renovate for $10,000.
You can claim 2.5% each year, or $250. So if you are in the 30% tax bracket you get $75 tax back each year for 40 years, or $3000 total tax back.
At end of 40 years you then sell, so you have to add $10,000 to the cost base. Let's say this pushes you to the top bracket of 45%. You claim your 50% cgt discount so you effectively pay 22.5% tax or $2,250.
You are ahead by $750 + whatever extra interest you were able to generate off the money you received each year worse case scenario.
It rarely makes sense to not claim as a result, although if you're in a very low income tax bracket now it may not be worth it.
Thanks a lot. That's really helpful.
Also bare in mind it is better to have money in your pocket now than in several years time where the value of a $ is less (due to inflation/having it in an offset or other way to invest it). It is almost always worth depreciating. Also, it will likely be over a period of a few years (40 years as mentioned above is for certain building costs). We bought an investment a couple of years ago and spent about $25k on renovations in kitchen/bathrooms/floors/painting/new blinds. Most of those costs in the depreciation schedule are over 20 years, most of which occurs in the first 5 years.
I can't bear the thought of the lost time value of money.
Most of those costs in the depreciation schedule are over 20 years, most of which occurs in the first 5 years.
To clarify - there are two types of depreciation for:
* Capital works - 2.5% p.a.
* Capital allowance - various methods over the item's useful life (if you use the diminishing value method, most of it will occur in the first 5 years).
Thanks for clarifying
isn't the renovation of a rental property bathroom just a new 85cent bucket from bunnings?
Yes. Still the question is whether it's worthwhile claiming that as expense and do 20 year depreciation of 85 cents
just put the rent up $90 a week to be safe.
It's correct that it's claimed thru depreciation
But it's money in your pocket now thru depreciation and you get 50% cgt discount if holding the asset for more than 12 months. So you should still come out ahead.