Depreciation is the second biggest tax deduction available for property investors. However, 80 per cent of investors are failing to take full advantage of it.
Property depreciation is the wear and tear of a building and its assets over time. Owners of income-producing properties can claim this depreciation as a tax deduction.
A tax depreciation schedule prepared by a specialist quantity surveyor is essential in claiming property depreciation. The schedule also lasts for the lifetime of your property (forty years). Your accountant then uses this schedule to determine your depreciation deductions each financial year. Depreciation deductions are taken from your pre-tax income, meaning you pay less tax.
We have partnered with BMT Tax Depreciation to share with you the top four benefits of property depreciation.
- It’s a non-cash deduction
Property depreciation is classed as a non-cash deduction. This is because depreciation is a natural process and you don’t need to spend any money in order to claim it. Even the tax depreciation schedule fee is 100 per cent tax deductible!
- The list is endless
Depreciation can be claimed under two categories:
- Capital works deductions for the building’s structure and fixed assets
- Plant and equipment deductions for the easily removeable or mechanical assets
As long as the capital works and plant and equipment assets are eligible for depreciation, you can claim them. This means things from the walls, doors, windows to the smoke alarms, blinds, air-conditioner and even the mailbox can be depreciated.
- You don’t always need to do the work
While you can’t claim previously used plant and equipment items, you can claim capital works completed by the previous owner.
This means if the previous owner completed a qualifying capital works renovation, you can claim depreciation for this work. Some common examples include a room extension, new roofing or a deck.
A site inspection is an essential step when completing a tax depreciation schedule. The specialist site inspector from a quantity surveying firm will inspect the property and identify any previous capital works completed that you can claim.
- It can be fast-tracked
You don’t always need to claim depreciation over a number of years. Plant and equipment asset depreciation can be fast-tracked or accelerated.
Eligible assets that cost less than $300 dollars can be eligible for an immediate deduction in the year of purchase. This means you can claim the total amount in the year of purchase. There’s no limit to the number of assets, so the immediate deduction could boost your cash flow by hundreds, potentially thousands.
In addition to the immediate deduction, low-value or low-cost assets up to $1,000 can be placed in a low-value pool. Once an asset is in the pool, deductions are accelerated.
For over twenty years, BMT Tax Depreciation has been the most trusted specialist in the industry. If you want to learn more about deductions available for investment properties, Request a Quote or contact their team on 1300 728 726.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation.
Please contact 1300 728 726 or visit bmtqs.com.au for Australia-wide service.