Depreciation may make owning property easier
A quality depreciation schedule could mean the difference between being able to purchase that ideal investment property or being forced to walk away.
The secret to astute property investment is not merely considering the potential rental return of a property, but also taking into account the various tax deductible costs and other deductions involved in owning the property. These include property management fees, rates, interest, repairs, maintenance and property depreciation.
These deductions each come back to the owner at their marginal tax rate and can add to the investor's net cash return.
Research has shown that the vast majority of property investors who plan on renting their investment fail to consider property depreciation prior to purchase. The following example illustrates why depreciation should always be considered when assessing a property.
A property investor was considering purchasing a ten year old house priced at $560,000. After conducting preliminary research with their Property Manager, the property was appraised with an expected rental income of $530 per week or $27,560 per year.
By including expenses such as interest rates, property management fees, rates, repairs and maintenance costs, the investor was able to work out a cost estimate of $36,060 per annum.
They contacted BMT Tax Depreciation for a free assessment of the property who found that they would be able to claim approximately $13,500 in depreciation deductions after the first full year.
Below is a summary of the investor's annual position depending on whether or not depreciation is claimed.
Rather than experiencing a weekly loss of $103, by claiming depreciation the weekly cost is reduced to $7, saving the investor $96 a week or $4,992 after the first year of ownership.
By crunching the numbers prior to purchase, an investor can gain a better perspective on the affordability of the property and their future cash flow position. After purchase, a property depreciation schedule should be prepared by a specialist Quantity Surveyor to ensure depreciation deductions are accurate and maximised.
BMT Tax Depreciation offers numerous ways for investors to obtain an estimate of depreciation deductions for any investment property they are considering purchasing. The BMT Tax Depreciation Calculator is available both online and as a mobile app by clicking here. Alternatively, investors can call BMT Tax Depreciation for a free over the phone estimate of potential deductions.
Article Provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is the Managing Director of BMT Tax Depreciation. Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.
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