You can increase your depreciation claim by splitting the purchase price of your investment property into the various depreciation categories set by the IRD.
Many investors only claim nominal depreciation based on the value of the chattels assessed by a registered valuer. This value is assessed for finance purposes and will not maximise the depreciation claimable by the property investor.
There are three main asset classes that should be included in an apportionment report for depreciation. These asset classes are:
LAND – Non depreciable
BUILDING STRUCTURE – Not depreciable as from 1 April 2011
CHATTELS & BUILDING FITOUT – Depreciable at between 8% to 60% for all dwellings
Building Fit-out examples: Air Conditioning Units, Handrails, Fences
By applying the correct depreciation rates as specified by the IRD you can maximise your depreciation claim and therefore your cash flow.
IRD carries out regular investigations into rental properties (this includes depreciation claimed). It is important that you engage a specialist Property Accountant or Valuer to ensure the values placed on your depreciation schedule are correct. Penalties will be imposed if the information in your return cannot be substantiated.
The two main benefits of having a specialist do your depreciation apportionment are:
- Maximise Depreciation
- Minimise Depreciation Recovery
Even with some changes announced in the May Budget 2010, the key for investors is to remember that despite the reduction in depreciation, most of this should be offset through personal income tax rate reductions and some minor rent increases.
Above all make sure you are claiming the maximum depreciation you can!
For futher advice contact us at Wealth Buy Property