Apportioning your purchase price into the applicable IRD depreciation categories
The two main benefits of having a specialised Valuit apportionment are:
Reduce the risk of IRD penalties
By splitting the purchase price of your investment property into the various depreciation categories set by the IRD, you will increase your depreciation claim.
Many investors claim nominal depreciation based on the value of chattels assessed by a Registered Land & Buildings Valuer. This value is assessed for finance purposes, and will not maximise the depreciation claimable by Property Investors. There are three main asset classes that should be included in an apportionment report for depreciation. These assets classes are:
Land Not depreciable
Building Structure Not depreciable as from 1 April 2011
Chattels and Building Fitout
Depreciable at: 8% – 60% for all dwellings
Chattels is the first category for depreciation of Residential Rental Properties. This includes assets such as:
Building Fit-out is the second category for depreciation of Residential Rental Properties. This includes assets such as:
Air conditioning units
These assets are a small sample of the various assets that can be separated from the building structure for depreciation purposes. By applying the correct depreciation rates as specified by IRD we can maximise your depreciation claim and therefore your cash flow.
Do it Right
IRD does regularly carry out investigations into rental properties, this includes depreciation claimed. It is essential that you, your accountant or valuer, are able to fully explain the methodology used or why certain assets have been included, and the values placed on each asset. Penalties will be imposed if the information in your return cannot be substantiated.
We strongly advise that you take direction on this matter from a specialist property accountant prior to submitting your tax return.