Do I need a valuation for depreciation purposes?

Question from Michael Taylor updated on 12th September 2008:

I have recently purchased a residential property in conjunction with a business partner - we want to claim depreciation on the building. For that we need to know the value of the building, presumably at the time of purchase. Do we have to get a valuation or can we somehow use the rateable value as our starting point and save the cost of a valuer?

Our expert responded:

Depreciation is always based on what you actually paid for the building, not the valuation at the time of purchase. However, if you want to make your depreciation claim bigger, then you need to get a chattel valuation. A chattel valuation is a breakdown of the various assets contained within the property, such as carpet and blinds. By having the breakdown, you can then claim the depreciation at the rate applicable to that asset. For example, the building depreciation rate is 3% but carpet is 33%. The chattel valuation must be done by an independent third party. If you are happy with just the building depreciation, then you can use the rateable valuation (or a registered valuation) to apportion your purchase price between the land and buildings.

Kenina Court is a director of Acorn Solutions Limited, an accounting firm dedicated to working with clients to help them create wealth.  She is an avid property investor, entrepreneur and seminar presenter on asset protection and wealth strategies.




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