For many property investors, reducing tax is a key part of their investment strategy. Yet surprisingly, many investors are missing out on a major tax deduction that could save them thousands. It’s called depreciation.
Depreciation or claiming the lowering in value of items within your property or the property itself can be an ample way to lessen your tax expenses and to get the most out of your return on investment. If you’re not maximising your depreciation on your investment property, you could be missing out too.
Over time, your investment property will age. The Australian Taxation Office allows quantity surveyors to calculate a deduction from this wear and tear so that the owner can claim it. And, it doesn’t just apply to the building itself, fixtures and fittings can also be claimed such as dishwashers, air-conditioning units, or hot water systems. When properly assessed, these items can quickly add up to significant tax deductions.
In terms of total returns from our investment property, maximising the tax deductions are paramount. Now, your accountant will ask you for a tax depreciation schedule to be prepared on each of your investment property. It’s important that you had a full inspection carried out on each of these investment properties, and be completed by a firm that’s approved with the tax practitioner’s board. This ensures that your tax depreciation schedule not only picks up all the depreciable items but is also ATO-complied.
Don’t forget that post-July 1, 1995 buildings are eligible. If you have a building that was constructed before this date, you’ll also have deductions that are entitled to be claimed such as floor coverings, bathrooms, extensions to kitchens, hot water systems, and etc.
Depreciation Schedule Benefits
Depreciation is one of the biggest and most under-utilised claims available to property investors. Many people do not realise the cash flow benefits of obtaining a depreciation schedule which can result in having to pay literally thousands of dollars less tax each year.
Comparing other deductions related to investment properties such as land tax and property management fees, depreciation is a deduction you can claim without spending money each financial year. You generally pay a one-off fee and receive a 40-year schedule that your accountant will utilise every year to legally reduce your taxable income.
Most people are under the misconception that depreciation is only claimable on new properties and that isn’t true. Depreciation can make a great deal of difference to your tax return whether your property is positively or negatively geared. You can always discuss your concerns with an experienced depreciation company. Additionally, most reputable companies will provide you with a minimum claim guarantee to ensure that the report is worth your while.
Most properties regardless of their age can offer investors substantial tax benefits through obtaining depreciation schedule. It’s important that you undertake a depreciation schedule as soon possible after the settlement date of your purchase because if you undertake renovations, a depreciation schedule will guarantee that you are entitled to all tax benefits through physical improvements to the building
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