Pour yourself a strong coffee and prop up your eyelids with toothpicks, it’s time to talk tax. To entice you a little more, this blog is going to teach you how to make, or at least save, a substantial amount of money. As a property investor, it’s really important to be aware of how tax depreciation works and how you can maximise your return… So here’s the what, why, how and who of making some money back on your investment.
What is tax depreciation?
Tax depreciation is a tax deduction claimed for the natural wear and tear of an income-producing building and its assets over time. It is generally the second biggest tax deduction for property investors, after interest. Every residential property investor should have a tax depreciation schedule to substantiate and claim maximum deductions. You can claim this loss in value as a tax deduction in your annual tax return.
A depreciation schedule lasts for the life of the property, which is 40 years. You need to pay one initial tax-deductible fee for the schedule, and then it is yours to provide to your accountant throughout the life of your property.
If you make significant changes to your property, you may need to update your schedule.
Who can claim tax depreciation?
Tax depreciation deductions are available for both residential investment property and commercial buildings. Most properties (new and old) have depreciation available.
How do you claim tax depreciation?
Good news alert! You don’t need to spend money to claim tax depreciation. Tax depreciation deductions are split into two categories:
- Capital works deductions
This refers to the buildings structure and items that are permanently fixed to the property such as kitchen cupboards, doors & sinks. Typically makes up 85 to 90% of the total claim, or
- Plant and equipment depreciation
This refers to items which are easily removable from the property such as carpet, hot water systems and blinds. These assets have a limited effective life as set out by the Australian Tax Office and can generally be depreciated over time.
There are different rates of depreciation available for different properties based on their type, industry and construction commencement date. For more help determining the rate for your property, contact one of my recommended tax experts listed below.
Can you claim in retrospect?
More good news, you can claim previous renovations. Anything in the property that is part of a previous renovation will be estimated and depreciated accordingly, even if the work was completed by a previous owner. This includes items that are not obvious, such as new plumbing, water proofing or electrical wiring.
Do certain property types attract a bigger claim?
While almost all residential property investors can claim depreciation, given the 2017 legislation, those who build or buy brand new rental properties will usually claim higher deductions.
However, any residential property that has either been built or renovated since 1987 will have a structural claim that will give ongoing deductions for forty years.
I’m ready to make money… where do I start?
We can recommend some experts in this field who can assist with arranging a depreciation schedule for your property.
BMT Tax Depreciation – 1300 728 726 or head over to their website at www.bmtqs.com.au
DEPPRO Depreciation Professionals – 9381 6100 or https://deppro.com.au/location/perth/
Asset Reports – 1800 47 37 67 87 or https://www.assetreports.com.au/residential-td
Any final words of wisdom?
The most important step is to get yourself a depreciation schedule, it’s an essential aspect of any investment property strategy. We recommend you get your schedule soon after settlement to ensure that you’re claiming the maximum deductions straight away.
However, if you’ve owned your investment property for many years, it’s not too late! A depreciation schedule can be used to amend up to two previous tax returns to recoup missing deductions. Now is the time to order your schedule – if you pay before June 30, you can claim the fee as a deduction in your tax return this financial year.
If this all seems sounds like a foreign language still, I’m more than happy to discuss the topic in further detail. Contact me for a chat on 0402 888 550.