Intro To Depreciation
Property Investment is an expensive exercise, which is why any potential investor should understand all of their options when it comes to cutting costs. Thousands of dollars go unclaimed each year due to a general lack of understanding regarding depreciation. This special tax deduction allows investors to write off specific investment related costs over time, often saving thousands of dollars in tax, and for this reason it is important to understand the basics.
As property gets older and the items within it wear out, they depreciate in value. The Australian Taxation Office (ATO) allows property investors to claim an investment property related one for the building materials, and one for the content. There are two types of allowances available. This means that investors can claim depreciation on items within the building such as ovens, dishwashers, carpet and blinds, as well ...view middle of the document...
There are several nuances and complexities that can make a huge difference at tax time such as low-value pooling and the rules surrounding low cost items and partial deductions for depreciating assets that are used for other than taxable purposes. To ensure that all deductions are legitimate for tax purposes, request a professional depreciation report from your quantity surveyor.
If you, as an investor, are looking to maximise the return you are getting for your investment, then you can’t look past depreciation! Depreciation is based on the effective life of an income- producing asset, and depreciation amounts are assigned over the expected assets expected lifetime. This depreciation value can then be claimed as a tax deduction essentially reducing you taxable income, meaning you pay less tax and will save money.
A Lesson To Learn
Typically, a new dwelling has a far greater depreciation allowance than an older pre-owned property. However, renovating an older property can increase the amount of depreciation available to an investor while simultaneously adding capital value to their property. For example adding a new kitchen and bathroom can increase the value of the property while also maximising the amount of rent a tenant will pay. As an investor it is important to make the most of whatever advantages are available to you, and subsequently maximise your depreciation allowances to their full potential.
Calculators Are Allowed
Online depreciation calculators are usually free, and are a great indicator on the amount of money you can save on your investment property via depreciation. Listed below are three popular online depreciation calculators, but there are many other options available:
While these are helpful tools, Place Advisory strongly recommends involving a professional quality surveyor and accountant before trying to claim depreciation.