- Posted 20 Oct
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The best way to improve the value you get out of your investment properties is to make sure that you are making the most of the deductions you are allowed to take. Follow these tips to get the highest benefit from investing in properties:
Claim deductions as soon as possible
If your home was built after 1987, you can claim depreciation for both ‘plan and equipment’ and ‘building’ categories. Building depreciation refers to items such as your home’s roof, brickwork, and door fittings that will need to be replaced over time. Plant and equipment refers to items that are not part of the structure but are essential to the function of the house. This includes items such as home appliances, flooring, and your boiler. For investment properties built before 1987, you’ll only be able to claim plant and equipment deductions unless the property has been renovated.
Deductions occur over a period of 40 years, and you’ll need to have a quantity surveyor inspect your property and create a depreciation schedule. A qualified surveyor will help you maximize the deductions you can take and make sure you’ve accurately captured your property’s value when you file your taxes. If you’ve missed out of claiming deductions in previous years, you can still pay for a depreciation report and file backdated tax forms for the previous two years.
Renovating an older property can make it more appealing to renters and may let you raise rents if surrounding neighbourhood rates are rising. As an added benefit, renovations are a solid source of tax deductions.
As an example, if you spend $25,000 to renovate your property’s kitchen, you can claim up to a third of the value in depreciation over the first year. Renovation deductions even apply to older homes. Properties built before 1987 are considered too old to depreciate, but when you make renovations you are able to claim depreciation on any new work that was done.
You may also be able to claim deductions for materials that are scrapped during the renovation. To find out the potential value for this deduction, you’ll need to hire a quantity surveyor to inspect your property before you begin destruction. Scrapping deductions are also known as a residual value write-off.
Don’t’ forget small ticket items
Items worth less than $300 can most often be written off as an immediate reduction. Expenses that fall between $300 and $1,000 are known as ‘low-value pool depreciation’ items. The depreciation rate for this category is 37.5 per cent, which is higher than for more expensive items.
Keep in mind this upper limit of $1,000 when making improvements. Some renovations will of course exceed this amount, but when purchasing appliances, for example, you’ll get a better deal if you can keep the value to less than $1,000.
Whether you are new to property investing or a seasoned pro, Australian Credit and Finance can help with all your home loan needs. Contact us today and let our mortgage experts help you finance your next property.