Join our investing community

Depreciation on Buildings for IP

Discussion in 'Real Estate' started by kevinb, 18th Apr, 2009.

  1. kevinb

    kevinb Well-Known Member

    Joined:
    6th Oct, 2005
    Posts:
    51
    Location:
    MENAI
    Hi Folks

    Just a quick one - the depreciation allowance on the building for an IP - is it 2.5% for buildings built after 1986?

    Rgds

    kevinb
     
  2. Jacque

    Jacque Team InvestEd

    Joined:
    16th Jun, 2005
    Posts:
    1,885
    Location:
    Sydney
    The date of construction of a building or renovation determines if the capital allowance is depreciated at a rate of 2.5% or 4%. Where it's depreciated at 2.5%, it can be claimed for 40 yrs. 4% it's only 25 yrs.

    More specifically, residential properties built between July 18 1985 and September 15 1987 attract a 4% building depreciation rate. Everything built since then attracts a 2.5% rate.

    So, if you do buy a property built in 1986, that means 23 of its useful 25 years have been eaten away (from 2009 to 1986). You will only be able to depreciate the residual for the next two years at 4%. Hardly worthwhile, in my opinion.

    However, if you buy a property where construction commenced in 1989, you still have 20 years to depreciate the property, at 2.5%.

    This shouldn't, however, be a major deciding factor in whether or not the IP is a sound investment. Depreciation may well reduce your costs initially but comes back to bite you upon resale.