How to track depreciation?

[David Harrison]

On 10/4/05, Andrew Sackville-West <andrew at farwestbilliards.com> wrote:
>
>
>
> David Harrison wrote:
> > On 9/30/05, *Mark Johnson* <mrj001 at shaw.ca <mailto:mrj001 at shaw.ca>>
> wrote:
> >
> > <<<snippity doo-dah>>>
> >
> > This method works fine for assets that depreciate, like cars and
> > computers. But, what about my house, or another asset that goes up in
> > value? Would you then record "negative depreciation"? If you are
> > recording depreciation for your car, then I would argue that you should.
> >
> > I trust I haven't confused the issue more ;)
>
> Houses are interesting as they generally appreciate, plus you can
> increase your basis in the house by making improvements which hopefully
> increase the value more than what you spend... I don't personally do
> this as I'm too lazy, but a friend keeps an asset account for the house
> which carries the purchase value of the house, as well as the associated
> mortgage accounts and interest expense accounts etc. Anytime he spends
> any money that adds to the house in any way: repairs, new roof,
> whatever, he records that not as an expense, but as an addition to that
> asset.


This actually holds true for any improvement to an asset. The "proper"
treatment is to add it to the cost base. Note, this does not apply to
repairs, only improvements.

Then when he sells the house, his basis reflects any money he's
> invested in the house. Makes his gains smaller for tax purposes (US),
> but also allows him to really get a handle on what he's doing with the
> house. What this doesn't do is make any record of increased market
> value. I think that gets too complicated as you'd have to call it income
> and that could get really screwy, although you could call it unrealized
> gains maybe? IANAA.


Yes, unrealized gains would be appropriate. The same as if you had gains in
a stock.

my .02
>
> A
>
>


--
David Harrison, BAccS, CGA
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