- Posted 27 Mar
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If you own an investment property and are looking to do some renovations, you can claim those renovations as depreciations come tax time to save yourself some money. Follow our tips to do this the right way.
1. Where to start
If have a rental property to generate income, you will be eligible to claim depreciations on any house renovations you may complete. You can claim anything that was completed after July 1985.
You are allowed to claim 40 years of deductions on any renovation construction costs at the rate of 2.5% per year. You can also claim depreciation on items such as dishwashers, floors and blinds, which are referred to as “plant and equipment”.
For this reason, when you make upgrades to your property, be careful about what things you throw out. These items can be used for depreciation purposes as well.
2. Residual value deductions
This is also known as “scrapping”, and it’s a way to write off depreciations that allow you to claim the balance of depreciation left on items when you throw them away or destroy them.
In other words, if you have an income-producing property that you purchased in 1994, and the kitchen is outdated today, because the ATO has determined that a kitchen should last 40 years, you have 20 years of available capital works and available “plant and equipment” deductions. This means that if the kitchen was valued at $15,000 in 1994, you have a $7500 residual value deduction when the kitchen is removed.
What’s more, once the new kitchen is put in, the cycle of 40 years begins anew. However, the item that was removed has to become income producing before and after the renovation in order for the depreciation to be claimed. Check with your accountant to confirm before you lodge any claims though.
3. Maximising your deductions
You need to be a savvy property owner when it comes to your deductions. There are numerous ways you can you can get the most out of your reno deductions, such as:
- Pre-renovation depreciation schedule. To make sure that you don’t miss out on valuable deductions, make sure to get a depreciation schedule before you begin the renovations. Your property may be 100 years old, but any renovations that were finished after July 1985 can still save you money, no matter who made the renovations.
- Post renovation depreciation schedule. When you’re finished with your renovations, make sure to get a depreciation schedule quickly. You don’t want to let this go tool long so that you can benefit from the most current values.
- Take the cost of everything into account. Any individual item that costs less than $300 can be written off right after the reno, so you want to find the lowest cost replacement items.
Mastering the ins and outs of depreciation takes a fair amount of homework. If you are not well versed in the specifics, make sure to consult with a trusted tax professional or a qualified quantity surveyor. They will have the expertise to steer you in the right direction for maximising your renovations and depreciations.
Chat with one of our team today if you’re looking to make the most of your investment property or access equity.