Depreciation – understanding the basics
As you have an interest in property investment you may have heard the terms “Chattels Valuation” and “Depreciation”.
Before we begin let’s clarify the term “Chattels Valuation”. I prefer to refer to it as a “Depreciation Apportionment” as what we are required to do by IRD is apportion the purchase price of your property into the various components and depreciation categories, this includes the land and buildings not just the chattels.
Depreciation is all about cash-flow and as investors cash-flow is critical.
Basics
First, you need to understand what depreciation is. The technical term is “An allowance for wear and tear on an asset over its useful life” IRD is aware of this and therefore allow you to claim an amount of depreciation each year as an expense in your accounts. Just as paying the rates is an expense, so is depreciation. The difference is that paying the rates means you open your wallet.
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