While many property investors would understand that owning an investment property allows them to claim certain tax deductions, one of the most commonly overlooked deductions is property depreciation.
Ask any tax specialist and they will tell you that a lot of property investors often miss claiming property depreciation because it is a non-cash deduction.
In fact, recent research conducted by LJ Hooker found 80% of property investors fail to take advantage of property depreciation and as such, are missing out on thousands of dollars in savings.
What is depreciation?
As a building gets older, the property and the items within it depreciate in value.
But while the property and its items (floor covering, pipes etc) depreciates, the Australian Taxation Office (ATO) allows property investors to claim a deduction related to the building and the items within it. As such, property depreciation can be claimed as a tax deduction that essentially lowers the property owner’s taxable income so that they pay less tax.
How can you claim depreciation?
In order to claim property depreciation, property investors are usually required to engage with a Quantity Surveyor to complete a Tax Depreciation Schedule.
The schedule outlines the deductions that are available to them on their property and is used by an investor’s accountant when they are preparing their tax return.
If you are a property investor and you haven’t previously claimed property depreciation, the good news is you are able to go back and amend previous returns in order to claim missed deductions - and we can help you every step of the way.
Key points to remember
At the end of the day, property depreciation is a great way to increase cash-flow on a residential property. If you are looking to make property depreciation work for you and your needs, there are some key points to remember, including:
- Property depreciation doesn’t just apply to new properties: An investment property does not have to be new. Both new and old properties will attract some depreciation deductions.
- Deductions are available for 40 years: According to the ATO, buildings are able to claim deductions for 40 years. So, if an investment property is brand new, investors can claim up to 40 years of property depreciation.
- Renovations can also be claimed: Anything in the property that occurred in a previous renovation can be estimated by a Quantity Surveyor and deductions calculated accordingly. This includes items that are not obvious, for example new plumbing, water proofing, electrical wiring or a pergola.
Contact either Owun, Suzanne or Costa on 02 9517 1818 or email@example.com to discuss your options. Or, if you feel like dropping in at our office, we are located at Suite 106, Flourmill Studios, 3 Gladstone Street, Newtown 2042. Be sure to share our blog on Facebook and Twitter and let others join the conversation!