NEW IRD RULES FOR DEPRECIATING RENTAL PROPERTY

Thursday 5 August 2004

An IRD discussion paper “Repairs and maintenance to the tax depreciation rules” was released on 12 July. It talks about how owners of rental properties will be able to claim depreciation on a building and chattels.

By The Landlord

The paper and its proposals, if enacted, carry many potential effects for residential property investors.

What does the paper say? The paper basically says the present depreciation regime allowed on rental properties is too generous and the Government is to change the rules. How might the system change? They say that the annual deduction of 4% of a building's diminishing value over 50 years is too high.

They propose replacing it with straight-line depreciation of 2% a year (which would be equivalent to about 3% a year on a diminishing value basis).


A second problem identified by officials is that more and more landlords are claiming separate and faster depreciation deductions for structural components of a building, such as electrical wiring, plumbing, hot water systems, carpets and internal walls.

IRD suggest a list of separately depreciable assets would be drawn up, as in Australia, which would include domestic appliances, hot water cylinders, air-conditioning systems, light fittings, carpets and lifts.

It would not include wiring, plumbing and internal walls, which IRD considers to be part of the building.

Landlords wanting to claim faster depreciation for the listed items would need to obtain market values for the assets on purchase and then again on sale.

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