Leaky homes not eligible for depreciation deductions under new rules

In last week's Budget it was announced that from the 2011-12 income year, depreciation deductions on buildings with an estimated useful life of 50 years or more - including rental houses and offices - will no longer be allowed.

Currently property investors can claim depreciation of up to 3% of a building's purchase price. However, this benefit is clawed back at sale time if the value has not fallen.

When asked by Landlords.co.nz how it would be determined whether a property built in the 1950s, for example, would be fit for another 50 years or more, an IRD spokesperson said this is based on the Commissioner's interpretation statement on the meaning of "estimated useful life" as it relates to special depreciation rate rules.

The Commissioner's view is that the phrase focuses on the total life of an asset - not its remaining life from a given point in time. As a result, the "estimated useful life" of an asset, such as a building, is not reduced by the amount of time it is owned, or used, by someone else.