Depreciation recovered on rental properties

If you:

• have claimed depreciation on a rental property in the past, and
• sell the building and chattels for more than the depreciated value

this depreciation recovery is taxable income.

However, if you sell the property at less than the depreciated value there will be no depreciation recovery. You cannot claim a loss on sale.

Outcome 1

You sell the property for $400,000 (excluding the land value*)

Difference between sale price and book value $20,000

Depreciation recovered $20,000.  Include this amount as income in your tax return in the year in which the property was sold.

Outcome 2

You sell the property for $425,000 (excluding the land value*)

Difference between sale price and book value $45,000

Depreciation recovered $20,000.  Include this amount as income in your tax return in the year in which the property was sold.

You can not be assessed for more depreciation than you’ve claimed.

Outcome 3

You sell the property for $390,000 (excluding the land value*)

Difference between sale price and book value $10,000

Deprecation recovered $10,000. Include this amount as income in your tax return in the year in which the property was sold.

Outcome 4

You sell the property for $350,000 (excluding the land value*)

Difference between sale price and book value ($30,000)

Depreciation recovered nil.

* Land isn’t a depreciable asset.

Prior to the 2011-2012 Income year you are entitled to claim depreciation for the months a property was held in the year that the property was sold, beyond that any loss is not an allowable deduction.

Remember - you must include any depreciation you’ve recovered as taxable income when you sell your property. If you don’t, you’ll be understating your income.

Find out more about depreciation

 

Date published: 30 Jul 2010

Back to top