Hi all. We are just about to work with our accountants through this financial year and have just been told that because of the law change. Our Rental Investment - Apartment in Wellington. The building does not get depreciated anymore. There are no more LAQC's. We are a Look Through Company now.

Unfortunately we may have to sell up as with the new law we would have to find $10,000 a year to sustain the apartment. Which we cannot afford. We have got great tenants in there at the moment. And we signed them up for another 6 months at the same rent a few days ago. So feel that we can't raise the rent now.

Are any of you with Property Investments in the same boat??

Are you sure you need to find another $10k? I just looked at our accounts from last year and the deductions allowed for building depreciation were $4k . So our allowable deductions will be $4k less

Yep same boat. Thought it wasn't effective until the next financial year though. Luckily we have had our 2 properties for awhile now so aren't making quite such a big loss on them now, but did count on getting our depreciation back each year. Sucky! Only thing to do is to increase the rent or sell or put money in yourselves. Get your accountant to work out your return without the depreciation and just make sure it is as bad as you think.

Cross posted with Skattiemas, I was just going to say as well that it may be tax deductions on $10k, not actually $10k less, if that makes sense?

Yup very much the same boat
and seeing as our places are in Invercargill we cant really put the rent up with all the poor ol students living in the houses to cover our losses.

My question is why are you only being told now - we have had 2 years to prepare for it??

You must have had options before going into a look through coy (ie partnership or qc as well a a ltc).

Even with the depreciation gone - we still make a loss - just not as big a loss

Yes we have had 2 years but didn't realise it would be such an effect.
Our apartment is only 3 years old. And our accountant emailed us yesterday to inform us that there is going to be a short fall of $9600 each year. So my husband and I have to find $4500 each. Which is not possible. We have body corp fees, insurance, high rates. Since we have owned it (3years) we have been putting in $200 each a fortnight to help with this loss. But at that stage we have a special tax certificate. Now our accountant is saying that its not worth applying for another tax certificate as it would only work out a saving of $10. So basically we go back to paying normal tax rate as well as try and put money in ourselves.
Rent is already $475 for a 2 bedroom central city apartment in Wellington.

I had the same thing with my rental (3 bdrm house in Glenfield Auckland) so I ended up selling it at the start of the last tax year April 2010.

Unfortunately because I claimed depreciation on the property I believe I have to pay a portion of that back now that I have sold the house. I dont know how much though - my accountant is just finalizing my last years accounts now.

So as a result of the depreciation law change ( and other costs going up ) you need to find another $4400 per annum . You must have some pretty big tax losses if you are having to prop it up that much so if you take your tax refund into consideration and offset it against the $9600 you are propping it up how much is it costing you then? Is it still unaffordable ?

Yeah you should still get a fair return if you are making such a big loss, depreciation aside.
If it helps, we top up our rentals (2 of them) with an overdraft and put our tax refund back into the overdraft. Over 5 years this has worked fine and only now are we needing to re-mortgage some of the overdraft back into the properties (which is fine as equity has increased) and our losses aren't quite as bad as they used to be.

My hubby has just gone through our books and its not as bad as we thought phewww.. So we might be ok now.

At the moment with our ingoings and outgoings we are only $4100 short.

We have broken our expenditure down so much that we are able to make it work.

This all depends on variables to, whether the interest rates go up, body corp could go up etc.

Not being able to depreciate an asset, that on an average year raises in value, is such a hardship? Come off it! No other investment can you claim losses on something that grows in value! Count yourself lucky that you were able to get away with it for so long!

By the way, just for the record I have 3! No, I'm not raising rent to cover my "losses". I have been using this depreciated windfall to do up my rentals over the past couple of years so that they are in good condition at a reasonable rent. That's the difference between a Landlord and a Slumlord.

Like other investments, rentals are long term. If you want a reliable retirement package you have to pay in for many many years before they start paying returns.

Thanks for your input Sunk.

And good on you for having 3 investment properties.

By the way we are not Slumlords.

And we didn't get away with it for so long. We have only claimed off depreciation for 2 years. So different kettle of fish compared to other Landlords that have many investment properties out to make a buck.

And yes we did intend to have our investment long term.

We are lucky we don't have to do it up. Self maintaining actually.

god sunk. What a mean and unnecessary post. She was asking for help and you were just being rude.

Offensive much?

I'm glad the sums aren't as bad as you initially thought Kazza

My sentiments exactly. No need to post if you are just going to be outright rude about it.

Sorry I didn't mean it to come across like that. I didn't mean to call anyone here a slumlord but there are so many out there that rib the system for every cent they can at the expense of those less fortunate than themselves. It also gets me when people moan that an unfair loophole is closed.

Also thought that post was completely unecessary. Problem for most small investors is that when purchasing the rental properties, depreciation was taken into consideration when doing the sums initially, so without it, it does affect us. And no, not a slumlord here either, have spent lots of money on my properties to attract decent tenants and get decent rents.

Thats exactly our postition. It looked fabulous and worked well on paper.

We also put money in every pay as well.

Sunk I can see where your coming from too as there are people out there that do rip the system off. And thats the reason I feel the law changed because of it. Totally affects small investers.