Residential Rental Property Acquired After the Start of 2012 Tax Year

Grange Associates Ltd - 27 February 2012

Although you cannot claim building depreciation from the beginning of the 2012 tax year, the common notion that you can no longer claim any depreciation on your rental properties is not the case.  Whilst building depreciation rates have now been set to 0%, depreciation is still allowed on all chattels.

So, if you have invested in a residential rental property on or after 1 April 2011, but did not obtain a valuation of any chattels included in the purchase at the time, you may want to do so before you complete your annual accounts for 2012.  They can then be scheduled and depreciated separately from the building itself.

Three-Step Approach

The IRD will apply the following approach to determine whether an item is part of a residential rental property or whether it should be depreciated separately.

1. Is the item in some way attached or connected to the building?  If the item is completely unattached, it will not form part of the building.  If the only means of attachment is by way of being plugged or wired into an electrical outlet, it is not considered attached for these purposes.  If the item is attached to the building, refer to step 2.

2. Is the item an integral part of the of the residential rental building?  Would the building be considered incomplete or unable to function without the item?  If it is an integral part, then it will be considered part of the building, and cannot be depreciated separately.  If it is not an integral part of the building, refer to step 3.

3. Is the item built-in, attached or connected to the building in such a way that it is part of the “fabric” of the building?  Take into consideration factors such as the nature and degree of attachment, how difficult it would be to remove the item, and whether there would be significant damage to either the item or the building if the item was removed.  If the item is part of the fabric of the building, then it is part of the building for depreciation purposes.

IRD Guidance

Further to the three-step approach, the IRD has provided guidance by way of the below examples as well as a new schedule of residential rental property chattels.

Not Separately Depreciable - Items Considered Part of the Building

Plumbing & piping
Electrical wiring
Internal walls
Garage doors
Fitted furniture
Kitchen cupboards
Bathroom Fittings & Furniture
Tiles (wall and floor) 

Separately Depreciable - IRD Residential Rental Property Chattels Depreciation Schedule 

Air conditioners and heat pumps
Air ventilation systems
Alarms (burglar/smoke)
Appliances (small)
Dehumidifiers (portable)
Furniture (loose)
Light shades
Microwave ovens
Satellite receiving dishes
Vacuum cleaners
Washing machines
Waste disposal units
Water heaters

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All information is correct at the date of article publication. Please note we provide the information as a service only. Accordingly, the contents are not intended as a substitute for specific professional advice and should not be relied upon for that purpose.   

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