How to save THOUSANDS OF DOLLARS a year on your investment property taxes with these 7 Property Depreciation Tips!
Depreciation can still be a bit of a mystery to even the most experienced of property investors. To novice property investors it most certainly always is.
There are two components to this claim; Building Allowance (bricks, concrete, etc.) and Plant & Equipment (carpets, ovens, etc.).
(UPDATE: Deductions for plant and equipment items may only apply to commercial properties, brand new properties, if you bought the property prior to May 9, 2017, or some other exceptions – Read about the Budget changes here).
As Quantity Surveyors, we categorise elements of the building into a “Depreciation Schedule” which allows you to legally claim the right deductions come tax time.
Well here are seven tips you may want to consider this tax year to increase the yield on your investment property:
- Small Items and Low-Value Pooling – A dollar today is worth more than a dollar tomorrow so deduct items as quickly as possible.Individual items under $300 can be written-off immediately.So if you are buying a microwave for your property – pay $290 instead of $310 and get the full amount written off!You can also try to buy items that depreciate faster. Items between $300 and $1000 fall into the Low Pool Category and attract a higher depreciation rate.So for instance, a $1200 oven attracts a 20% deduction while a $950 TV deducts at 37.5% per annum.
- Depreciation reports are tax deductible – Book and pay for a depreciation report before the 30th of June, and you can claim the cost of the report as an outright deduction.On average, property investors can claim between $4,000 to $15,000 in depreciation in the first year alone. The age of the property has a lot to do with why that range is so great. The newer the property, generally, the more depreciation you get.
- Renovated properties – You can buy a property that might be over 100 years old…and provided it’s been renovated after 1987 you can claim the costs of those renovations. So even if you didn’t do the renovation, the deductions are there for the taking!
- Older properties – It’s true that new properties get the maximum depreciation allowance available to property investors, but don’t discount old properties. The minimum depreciation allowance on any property starts at around $2,000 in the first year alone.
- Scrapping reports – If you buy a property and are going to renovate the property, it’s worth getting a Quantity Surveyor like Washington Brown to inspect the property BEFOREHAND. We will attribute values to those items that are about to be removed. This can add up to a substantial amount, especially if the property was built after September 1987. In order to do this, the property has to be income-producing prior to the commencement of the renovation.
- Old properties depreciate too – In order to claim the Building Allowance the property needs to be built after September 1987. But, you could still claim depreciation on things likes carpets, ovens and blinds – regardless of the age (if unaffected by the 2017 Budget). Most Quantity Surveying firms guarantee to get you at least twice their fee as a tax deduction in the first year or give you the report for free.
- Backdating reports – If you haven’t claimed depreciation because you didn’t know about it – there is good news. You can go back and amend your previous two tax returns and get the missing deductions backdated. It will cost you in accounting fees, but could well be worth it.
If you are a property investor and don’t have a depreciation schedule – get a free quote here.
Or use our free calculator to work out for yourself how much you could be saving!