{"id":5285,"date":"2015-08-05T01:00:07","date_gmt":"2015-08-04T15:00:07","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=5285"},"modified":"2015-08-05T01:00:07","modified_gmt":"2015-08-04T15:00:07","slug":"how-depreciation-affects-capital-gains-tax","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/how-depreciation-affects-capital-gains-tax\/","title":{"rendered":"How depreciation affects capital gains tax? – Brad Beer"},"content":{"rendered":"

 
\nToday, together with\u00a0Brad Beer <\/a><\/strong>from BMT Tax Depreciation, we answer your question!
\nI have an investment property that I claim depreciation on each tax year. Can you please advise what happens when I sell the property? Do I then have to pay back everything that I\u2019ve claimed? Does this mean all of the deductions have to be paid back?\u00a0<\/i>For example, if I get $5000 worth of depreciation and I\u2019m on a 30% tax bracket, I get approximately $1500 back. Do I only have to factor in the $1500 or the full $5000? How does it work?<\/i>
\n <\/p>\n

Transcript:<\/h4>\n

Kevin<\/b>:\u00a0 I had a question sent in, which we\u2019re going to answer now, from Gary. Thank you for the question, Gary. I\u2019ll just quickly read through it and then introduce the person who will answer it for you.
\nI have an investment property that I claim depreciation on each tax year. Can you please advise what happens when I sell the property? Do I then have to pay back everything that I\u2019ve claimed? Does this mean all of the deductions have to be paid back?<\/i>
\nFor example, if I get $5000 worth of depreciation and I\u2019m on a 30% tax bracket, I get approximately $1500 back. Do I only have to factor in the $1500 or the full $5000? How does it work?<\/i>
\nWell, Gary, let\u2019s get an answer on that question for you from Brad Beer from BMT Tax Depreciation experts.
\nBrad, thanks for your time.
\nBrad<\/b>:\u00a0 Thanks, Kevin. It\u2019s nice to be here.
\nKevin<\/b>:\u00a0 Can you answer Gary\u2019s question?
\nBrad<\/b>:\u00a0 Look, I can. The question relates a bit to his situation. It\u2019s a bit of an accountant whirl, but I\u2019ll give you the how depreciation affects capital gains tax answer really, and in this particular scenario, I can give you pretty close to what it would be, definitely.
\nKevin<\/b>:\u00a0 Fire away.
\nBrad<\/b>:\u00a0 Now, it is a very regular question I get. We\u2019re the quantity surveyor that works out the depreciation. We don\u2019t do the rest of your tax return, but I kind of know how it works.
\nWhen you claim depreciation what happens is and in this example, he\u2019s saying, \u201cIf I claim $5000 worth of depreciations, I get that back at my tax rate at 30% at $1500.\u201d Now, if or when you actually sell a property, what happens is that that $5000 actually gets added to your cost base for the purpose of capital gains tax. What\u2019s going to happen is you\u2019re going to pay more capital gains tax based on what you claimed.
\nHowever, usually, under the current rules, what happens is you get a 50% exemption on that capital gains tax payable, providing you\u2019ve owned it for 12 months or more. What that means is that in this scenario, there\u2019s $5000 additional income added to the end value from a cost base perspective, and you\u2019ll pay additional capital gains tax at half of that marginal rate. In this scenario, he\u2019ll pay back $750 of his $1500 effectively on the sale of the property.
\nKevin<\/b>:\u00a0 There\u2019s still a net benefit, though, isn\u2019t there?
\nBrad<\/b>:\u00a0 Yes. The fact is he\u2019s made a deduction, he\u2019s got $1500 in the pocket, and then if he sells the property, for that year, he\u2019s going to pay $750 of it back to the tax office. Now, that\u2019s only half of it.
\nThere are different tax brackets and things like that, but what happens is in most scenarios, because you\u2019re only paying that tax at half the amount, it pretty much always works out that it\u2019s worth actually claiming it on the way through, and then at the end, when you pay some additional capital gains tax, you\u2019ve put more money in your pocket on the way through.
\nThe other thing is also about the time value of money. If I get a dollar in my pocket today, it\u2019s worth more than a dollar in my pocket in a year or two years or three years\u2019 time. Capital gains tax is something you pay if you sell or when you sell, which will \u2013 I assume \u2013 be at a later date. You get to use that money. You can put it into reduce debt and do things on the way through. You just need to have some more available at the time when you potentially sell the property.
\nKevin<\/b>:\u00a0 As always, though, Gary, make sure that you check with your accountant. I\u2019m sure you would agree with that, Brad. Just check with your accountant. Your individual circumstances may alter that advice.
\nBrad<\/b>:\u00a0 Definitely.
\nKevin<\/b>:\u00a0 Brad, can I just ask you, at this time of year, any advice that you might have for property investors?
\nBrad<\/b>:\u00a0 Well, Kevin, it\u2019s interesting. Over the last few months, there\u2019s been a fair bit of heat in a lot of markets around a lot of the country \u2013 not everywhere, but a lot of the country. One thing that makes me think about is just making sure you\u2019re crunching your numbers properly. If prices have moved forward, the cost of owning that property is a little bit higher than it used to be, and really have a good look.
\nIt\u2019s all well to follow what a lot of people are buying and feel like you really need to get into the market right now before they go up too much, but you still have to make the payments, you still have to hold the property over time and make money or wealth out of that property in the future, so make sure you crunch your numbers \u2013 depreciation estimates are one part of that \u2013 and see what really is going to cost you to hold that property.
\nConsider that interest rates could go up in the future at some point when you do that, so make sure you do some scenarios both ways to make sure you could still hang onto it so that if it\u2019s not quite so hot, you are still safe.
\nKevin<\/b>:\u00a0 Very good advice from Brad Beer from BMT Tax Depreciation. Brad, thanks again for your time.
\nBrad<\/b>:\u00a0 Thanks, Kevin. Appreciate it.<\/p>\n","protected":false},"excerpt":{"rendered":"

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