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Tax Deductions For Property Investment

What tax deductions are available to property investors?When looking to purchase an investment property, it is worthwhile to ask a number of questions. While many investors consider location, purchase price and tenanting ability when contemplating an investment property purchase, depreciation is often overlooked as an important factor. Depreciation can help unlock the cash flow potential within an investment property, often resulting in thousands of additional dollars for the investor each financial year.

What is depreciation?

As a building gets older, items wear out – they depreciate. The Australian
Taxation Office allows property owners to claim this depreciation as a deduction. Depreciation can be claimed by any property owner who obtains income from their property.

Claiming building structure as a deduction

Capital works allowance deductions are based on the historical cost of the building excluding the cost of all ‘plant’ and non-eligible items. As a general rule any residential building which commenced construction after 18th July
1985 and any commercial property which commenced construction after 20th
July 1982 are eligible for the capital works allowance.

Common depreciable items in an investment property

Plant and equipment items, commonly known as removable assets, are also eligible for depreciation deductions. Each plant and equipment item has an effective life set by the Australian Taxation Office. The depreciation deduction available on each item is calculated using the effective life. Some plant and equipment depreciable items commonly found within a property include:

  •  hot water service
  • light shades
  • garbage bins
  • ceiling fans
  • solar panels
  • vinyl
  • dishwashers
  • ovens
  • clothes dryer
  • carpet
  • furniture
  • curtains
  • blinds
  • range hoods
  • cook tops
  • exhaust fans
  • smoke alarms
  • door closers

Claiming depreciation during renovation

To ensure property owners are making the most of the tax deductions available, they should consider a pre-renovation depreciation schedule. Old assets within a property can be worth thousands of dollars. When these old assets (like carpet and hot water systems) are replaced during a renovation, the owners may be entitled to claim them as a tax deduction. A Quantity Surveyor, who is qualified to calculate values and construction costs, can ensure the owners are not throwing dollars away!

Investment property owners who are aware of potential deductions are able to maximise cash flow through their investment properties.

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.

Become Depreciation WiseMaximise the tax depreciation benefits of an investment property.

While many property investors consider location, purchase price and tenanting ability when contemplating an investment property purchase, depreciation is often overlooked as an important factor. Depreciation can help unlock the cash flow potential within an investment property, often resulting in thousands of additional dollars for the investor each financial year.Considering the following factors will help property investors understand how property tax depreciation can change their cash flow position:

The age of the property: Both new and older properties will attract some depreciation deductions, although generally, newer properties have newer assets and a higher un-deducted value resulting in higher depreciation.

The type of property: Units and townhouses that are part of a strata or community title can be entitled to claim common property benefits in addition to the unit’s depreciation benefits.

The amount of common property: Common property items within a strata or community title complex such as driveways, fire equipment, lifts and swimming pools are included in the depreciation report. Usually, more common property results in higher depreciation claims.

The amount of plant and equipment: Plant and equipment includes items that are easily removed from the property, or not permanently fixed to the structure. Some examples are light shades, stoves, air conditioning systems, blinds and carpet. These items can be depreciated at a higher rate than the building and add significantly to the depreciation claim. More plant and equipment generally means higher depreciation claims earlier.

Different asset types will affect the depreciation deductions available. For example, when looking at flooring worth about $2000 the different types have a very different result:

 

The same applies with air conditioning. If a property owner has $5000
worth of cooling, these would be the expected deductions:

 

Figures based on Diminishing Value method of depreciation using current legislation.

Always consult a depreciation expert about an investment property’s depreciation entitlements. Taking full advantage of the available tax benefits on an investment property can improve a property owner’s cash flow each financial year. BMT Tax Depreciation offer obligation free advice about a property’s depreciation potential. Simply call 1300 728 726 to discuss any property scenario.

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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