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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.

 

 

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