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Ballpark depreciation values?

Discussion in 'Accounting & Tax' started by Bran, 22nd Dec, 2015.

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  1. Bran

    Bran Well-Known Member

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    I've never bought a new, or near new property.

    How do you guys factor in depreciation into your sums prior to purchase?

    Can you suggest ball park figures on depreciation alone? Is there a simple thumbs guide to use? A percentage of purchase price say?

    @sash you buy a lot new?
     
  2. BMT Tax Depreciation

    BMT Tax Depreciation Chris Business Member

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    In the first year a new property might see you with anywhere between $6000 (a basic townhouse or cottage) through to around $20 000 (high-end unit, executive residence). More information is needed. There's no single yardstick that can be used.

    But the solution is simple: talk to a schedule provider. I can't speak for everyone but we can provide an obligation-free estimate simply by getting the address from you and looking at a listing, with maybe a couple of questions asked for good measure. There's always our depreciation calculator online (Tax Depreciation Calculator & App | BMT Tax Depreciation) but that uses aggregated results for the inputs you use, meaning it will usually be more accurate if you get an estimate specific to your property.

    Using a percentage of purchase price is a bad idea. The same house will have wildly different purchase prices in different locations but similar depreciation results.

    If you're curious, send me the property's address or link to its listing.
     
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  3. sash

    sash Well-Known Member

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    Yes mostly H&L....depreciation averages about 7-12k per annum in the first 5 years. The houses I build are small so depreciation is good but not as great has a high rise unit.
     
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  4. BMT Tax Depreciation

    BMT Tax Depreciation Chris Business Member

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    Yes, that sounds about right for new H&L properties, depending on the size and fit-out. In terms of an estimate, though, there's still a fair margin in that $7k-12k. With a bit more information we can usually narrow the estimate down to a window of $1k-2k.
     
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  5. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Personally I don't factor in depreciation (or any other tax considerations) when I purchase. That's just the icing, not the cake itself.
     
  6. Bran

    Bran Well-Known Member

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    Hi Peter. I totally get this. But at a 47% MTR, it's not insignificant.
     
  7. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    I agree that the refund is not insignificant from a cash flow perspective. The true value of a property is in the location and growth potential and compared to that, tax benefits are fairly insignificant.

    Also keep in mind that tax benefits are based on your income. If your circumstances change and you're no longer in the top MTR, does that make this a bad investment? What if the government does bow to public pressure and scraps negative gearing (unlikely but not impossible)?
     
  8. Bran

    Bran Well-Known Member

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    All good points. I would have to be extremely disabled to drop out of that rate, and then income protection should kick in anyway.
    But - I'm comparing it to another strategy where the tax benefits are one of the issues to consider.
     
  9. neK

    neK Well-Known Member

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    Same here. Depreciation is extra. If i need depreciation for a deal to work, its not worth it.