Residential investor’s guide to property depreciation

Money doesn’t grow on trees, but there is a way that property investors can boost cash flow without spending any.

Property depreciation is the natural wear and tear of a building and its assets over time. Owners of income-producing properties can claim depreciation as a tax deduction, and they don’t need to spend any money in order to claim it.

What can be depreciated and how it is claimed

Depreciation can be claimed for the structural component of the building (capital works deductions) and for easily removable or mechanical assets (plant and equipment deductions).

A common misstep when claiming depreciation is assuming that it can be calculated by an accountant at tax time, but this is not always the case. Specialist quantity surveyors are one of the few professionals recognised as having the skills to estimate construction costs for depreciation purposes.

Following a site inspection, a quantity surveyor will complete a tax depreciation schedule for the property. An accountant uses this to determine the investor’s depreciation deductions each year.

Depreciation and second-hand properties

A survey completed by BMT Tax Depreciation indicated that investors regularly choose to purchase second-hand properties over brand-new.

It’s important that investors are aware of recent changes that affect depreciation for second-hand properties. Under legislation changes introduced in 2017, owners of second-hand investment properties can’t claim depreciation on previously used plant and equipment assets.

They can still claim depreciation on any assets they purchase for the property, and all qualifying capital works deductions. On average, capital works deductions make up 85 to 90 per cent of a total depreciation claim, so there’s still plenty available for second-hand properties.

Deprecation for strata properties

Many investment properties are part of a strata complex. For example, an apartment or townhouse. Depreciation for strata properties works the same as it does for houses, with one addition. Strata property owners can also claim depreciation on what’s called common property assets such as garbage bins, elevators and shared gym equipment.

Common property asset depreciation can be different for each owner within the strata. This is because the value of the asset is based on the owner’s interest. This often results in the common property asset qualifying for an immediate deduction or falling into a low-value pool.

How does it boost cash flow

Property depreciation is a tax deduction. It is taken from an investor’s pre-tax income, meaning they pay less tax.

In some instances, depreciation can turn a positively geared property into a negatively geared one, without making any additional costs. This can result in a big reduction in the investor’s tax bill.

For over twenty years, BMT Tax Depreciation has been the most trusted specialist in the industry and has completed over 700,000 tax depreciation schedules, Australia wide. BMT guarantee to find double their fee in the first full financial year claim, or they won’t charge for their services.

If you want to learn more about depreciation, Request a Quote or contact BMT 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.

 

 

Share:

More Posts

June Quarter Market Update

There has been no hibernating for Melbourne’s housing market over the June quarter, with the median house sale price tipping over the million-dollar mark to $1.01 million. While this only represents a 0.2 per cent increase in the last quarter according to recent Real Estate Institute of Victoria (REIV) figures, this follows a record 8.8 per cent growth in the

Sound strategies for winning an auction

You could call watching an auction in Melbourne a much-loved sport. As the preferred selling method, there are a few factors to consider before you let your heart take over and bid above your budget. Unfortunately, bidding at auction isn’t an exact science; there are many methods, and every auction is different. If you are planning on bidding, you’ll stand

Why landlord insurance is a sure-fire win

Taking out insurance is a lot like buying a lottery ticket, with both decisions steeped in possibilities and ‘what-ifs’. However, when it comes to investment properties, landlord insurance is a wise gamble. Landlord insurance is designed to cover the cost of replacement or repair if your residential rental property is damaged as a result of certain events. This type of

Grandmillenial Style – why it’s a trend you need to jump on

A new trend in home decorating has emerged and is quickly gaining momentum. It is called “Grandmillenial” style or “Granny Chic”. This style is full of nostalgia for anything old fashioned or traditional, like something you’d see in your granny’s home, throw in some contemporary artwork or sleek modern furniture and there you have the style in a nutshell. While

Send Us A Message