Managing Depreciating Assets When Selling a Rental Property
When it comes to selling a rental property with depreciating assets, the restrictions on depreciation deductions for residential rental properties come into play. This affects situations where a depreciating asset, like equipment or fixtures, is scrapped or sold along with the property.
Keep in mind that analyzing the tax implications of scrapping or selling a depreciating asset needs to be done for each asset separately. This usually involves dividing the purchase and sale price of the property among the depreciating assets installed at different times.
Balancing adjustments are required under S.40-285 when dealing with the sale or scrapping of depreciating assets. This involves calculating the difference between the asset's termination value and its adjusted value.
In cases where depreciation deductions are denied or reduced under S.40-27 due to new restrictions on residential rental properties, the balancing adjustment upon disposal is also affected. If depreciation is reduced because the asset was previously used, the balancing adjustment will be reduced proportionally. In essence, if depreciation cannot be claimed due to S.40-27, the balancing adjustment will be reduced to zero. Refer to S.40-291 for more details.
Got questions? Reach out to Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment on our live calendar.