Why You Need A Tax Depreciation Schedule For Your Rental Property
Missing Out On Your Tax Depreciation Schedule Could Be Costing You Hundreds Of Thousands Of Dollars In Savings…
If you’re a property investor or business owner, you understand the importance of seeking ways to save money on your investment and bolster your profits. That said, many property owners are missing out on one of the most significant at their disposal: a rental property depreciation schedule.
The barrier for many is a lack of awareness regarding what property depreciation and rental property depreciation schedules are. Fortunately, saving money begins with learning more about this topic.
In this guide, we’re going to take a closer look at property tax depreciation schedules, what they involve, and how you can save money on your property investments with Washington Brown.
What Is Property Depreciation?
Property depreciation refers to the overall loss of the value of an asset over time due to physical deterioration. This deterioration can apply to both the structure you’ve invested in and the contents of the building.
According to Australian tax law, individuals who own real estate used for income-producing purposes are entitled to claim the depreciation of that property against their taxable income.
Deciding to purchase a tax depreciation schedule can help you save hundreds of thousands of dollars that you may not have even known you could save on your investment property.
Understanding the Different Depreciation Deductions
As a property owner, you can claim depreciation based upon two parts of the income tax assessment act.
The first, capital works deductions (Division 43), which help you save money by making claims in regards to the building itself. For example, some of the capital allowances that you may be able to claim include items like concrete, brickwork, tiling, the roof…to name a few.
The second, plant and equipment deductions (Division 40), cover fixtures and fittings that you can find within your investment property. Some examples of plant and equipment deductions include items like ovens, dishwashers, and carpets.
Making both claims can help you save a considerable amount of money due to the gradual wear and tear experienced on both the property you own and the contents of the property. But what exactly are the rules on claiming depreciation? Who can do it?
Can All Property Owners Take Advantage Of Tax Depreciation Schedules?
If you’re a commercial property investor, the good news is that there are no restrictions regarding your ability to claim capital works deductions or plant and equipment deductions on any of your properties.
For those who invest in residential properties, the law is a bit more complicated. In 2017, a new law was passed that restricted owners of second-hand residential properties from depreciating “previously used assets” such as ovens, dishwashers, and carpets..etc.
The good news is, that regardless of when you buy a property, you will still be able to claim the capital works deduction and this represents approximately 85% of the construction cost., provided the property was built after 1987.
Why did the government make these changes? They became more concerned about residential property investors purchasing older properties and making high depreciation claims on their purchases.
Fortunately, if you purchased your property before 2017, you are still able to claim both the capital works deduction and the plant and equipment claim on your rental property depreciation schedule.
Understanding this new law is critical to getting the most savings out of your older and newer investments.
If you buy a brand new property though, you can still claim both the depreciation on the plant and equipment and the building itself.
New Residential Property Investment Depreciation Case Study
Residential investment properties can be confusing for those seeking to purchase a tax depreciation schedule and save money on their investment properties. As such, having a solid idea of what you can expect from your schedule can help you see the impact of depreciation claims.
Let’s dive into a case we handled for a client who approached Washington Brown for tax depreciation assistance:
Case Study – Apartment
- Settlement Date:
- Purchase Price:
- First Year Claim:
This client purchased a high-rise apartment in 2016. The building was constructed in 2015, meaning 39 years of capital allowance deductions were left, as well as the plant and equipment depreciation. The client’s share of common property was also included in their schedule.
* Please note that these results are only accurate for properties purchased before 9 May 2017 due to changes in the Federal Budget.
These are the final amounts the client was able to claim each year, based on the diminishing value method. The claim includes both the capital works deductions (i.e., bricks and mortar) and the plant and equipment assets (i.e., fixtures, fittings, and appliances), both of which are explained in more detail below.
As you can see, high-rise apartments can yield substantial deductions, with construction costs often quite high; this client was able to claim $19,622 in the first year alone.
Factors That Affected The Final Claim
Building Allowance (Capital Works Deductions)
The depreciation of the building structure itself is quite simple. The deductions will be 2.5 percent per full year of the Building Allowance, totaling 40 years. To calculate the building allowance, take the total construction costs and deduct the cost of plant and equipment and any ineligible items (like demolition and living plants).
Apartments often have a high construction cost in relation to their living areas compared to houses. This is because the property’s share of common areas, including lobbies, pools, underground car parks, etc., can all be included in most states.
In this case, $7,854 is claimable per full financial year.
Plant And Equipment
These are items such as blinds, carpet, appliances, light fittings, etc. The total value of these items in this house was $45,379. These items depreciate at a faster rate than the ‘bricks and mortar’ classified as Building Allowance.
High-rise apartments may have a lot of plant and equipment you don’t know about, including fire services, internal ventilation fans, common property items such as lights and carpet, and much more. We’ve prepared over two hundred thousand rental property depreciation schedules and we make sure you don’t miss out on anything!
How Much Can I Claim In Depreciation Deductions?
The answer to this question depends on a wide variety of factors. For example, the size, age, and value of the asset all play a role in how much you will ultimately be able to deduct once you decide to purchase a tax depreciation schedule.
That said, you can often expect hundreds of thousands and tens of thousands of dollars per annum subject to the property – so it’s well worth investigating.
However, the total will vary from investor to investor, which is why it’s so important to reach out for professional help when seeking to make these deductions on your investment property.
Click here to learn how to calculate depreciation on your investment property or use the property depreciation calculator.
Why Should You Claim Depreciation As a Property Owner?
Real estate, like anything, loses value over time as it begins to experience regular wear-and-tear. When you buy a property the depreciation is already built into the purchase price. It’s up to you, with help of a professional, to calculate how much you can claim.
It’s important to maximise your property depreciation deductions regardless of whether it is a residential property or commercial.
Not only is it common sense, but it’s good business to maximise your deductions and, in turn, your profits. Many owners miss out on the savings that can be made through depreciation. If you don’t want to let these savings go unclaimed, now is the time to get a tax depreciation schedule!
Does The Size Of The Property Matter?
In terms of depreciation Yes size does matter!
Generally speaking the larger the property the larger depreciation. That’s because we base the depreciation on the actual cost of construction.
It makes sense that a 3 bedroom unit will cost more to build than a one-bedroom unit – all else things being equal.
And the higher the construction cost – the higher the depreciation deductions available to you.
FAQs Regarding Your Tax Depreciation Schedule
At a glance, a rental property depreciation schedule is relatively straightforward. However, many property owners will have questions regarding their schedule that won’t necessarily pertain to their property. To help you clear up any confusion you may be experiencing, let’s dive into some of the most common questions regarding these items.
- How Much Does a Depreciation Schedule Cost?: The cost of preparing a tax depreciation schedule varies according to numerous factors, including your property’s location and size. The good news? The fees are 100 percent tax-deductible, and we guarantee you’ll save at least twice our fee in the first 12 months, or there’ll be no charge!
- How Often Do I Need a Tax Depreciation Schedule?: You only need to get it done once, for which the schedule is valid for up to 40 years (the lifetime of the building). However, we recommend updating the report if you do any renovations, repairs, or need to replace internal items that will affect your overall claims.
- Why Can’t I Do My Tax Depreciation Schedule Myself?: Many issues can arise when one decides to record and make depreciation claims without the assistance of a tax professional. Without the proper support, you can end up missing out on thousands of dollars that you would have otherwise been able to claim on your investment property. Beyond missing out on potential claims, misreporting can result in an ATO audit that could have been avoided. TR97/25 has identifield Quantity Surveyors as being an appropriate body accepted by the Australian Taxation Office.
- What Do You Do With Your Tax Depreciation Schedule Once You Have It?: After your tax depreciation schedule has been completed, all that’s left to do is give it to your accountant to make sure that it’s filed properly.
- When Should I Have My Tax Depreciation Schedule Completed By?: It’s best practice to have your depreciation schedule prepared as soon as possible after your settlement date.
How Do I Get Started?
If you’re ready to save money on your commercial or residential property, you can turn to Washington Brown for your tax depreciation schedule!
At Washington Brown we are experts in commercial and residential property tax depreciation dedicated to making sure that you’re able to maximise your depreciation claims safely and effectively.
Our specialist commercial property depreciation team offers you greater savings by leveraging their extensive property experience to find claims on your property.
How? The process is simple:
Step 1: Contact Us
When you’re ready to maximise your tax savings on your commercial or residential property, contact us. Where necessary, we’ll conduct a property inspection or review your project documents to ensure that your real estate deductions meet ATO requirements.
Step 2: Let Us Find Opportunities To Claim
We go through the process of analysing your investment property, finding deductions, and documenting all claims so that you can rest assured that you’re getting the savings that you’re able to claim from your property. You can also use our depreciation calculator to learn more about what types of claims are currently available to you.
Step 3: Save Money!
Whether you’re the owner of your investment property or a tenant running your business out of it, Washington Brown is dedicated to helping you save money. Just reach out to us, let us find your claims, and save! It really is that easy.
Having been in business for 43 years, we have the experience necessary to ensure that you’re getting the most out of your tax depreciation schedule. In fact, we prepare more than 13,500 reports per annum and deliver more than $1.5 billion in depreciation savings each year.
Working with Washington Brown for your property depreciation needs also means:
- Benefitting from our digitally powered quality assurance process, the TAXMAX500™, which evaluates every property across 500 variables and is constantly updated as ATO policies change to guarantee you maximum returns
- Receiving our 14-day turnaround guarantee (If we don’t give you your depreciation report within the promised timeframe, we will reduce the fee by 50 percent!)
- Our guarantee of twice our fee in deductions within the first 12 months after settlement, or there is no charge (In other words, you double your money or you pay nothing!)
If you’re ready to save money on your investment property and get your tax depreciation schedule done, contact us to begin working with you to make the most of your capital works and plant and equipment claims. Your property savings are just a call away!