- Posted 13 Jul
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A property depreciation report, also known as a property depreciation schedule, is a tax deduction you can claim if you own investment properties. This deduction accounts for wear and tear that happens on an investment home over a period of time.
Property depreciation deductions belong to one of two categories:
- Plant and equipment – This category includes items that are not part of the house structure but will have to be replaced over time. Examples include kitchen appliances, blinds, flooring, and air conditioning units.
- Building – Building refers to structural items that will need repair or replacement over the life of a home. Examples include structural items such as the home’s brickwork, window and door fittings, and the concrete driveway.
In order to legally take advantage of property depreciation, a quantity surveyor will have to inspect your home. He will create a custom depreciation schedule following rules set forth by the Australian Taxation Office (ATO).
For the building portion of the deduction, ATO rules state that a new property depreciates over 40 years. So if your investment property is more than 40 years old you will not be eligible for this deduction. But if you purchase a newer investment home you’ll be able to claim 1/40th (or 2.5 per cent) of the home’s value in depreciation each year. On a $500,000 home that equates to $12,500 per year.
Plant and equipment deductions vary for different items, but a surveyor will be able to calculate potential deductions based on the effective life of the home’s appliances, carpeting, and other major equipment.
Benefits of a depreciation report
Because of the way that building depreciation is calculated, investors get a bigger depreciation break on newer properties. But even if the place is older it can still be worthwhile to have a surveyor create a depreciation report. You’ll only need to pay for the report once; the surveyor should lay out a schedule of deductions that will cover the next 40 years for the property.
It’s best to have the survey done and create a depreciation schedule when you’ve secured the home loan to purchase your new investment property. But if you did not get it done after the initial acquisition you can still benefit. In fact, you may be eligible to backdate the report by two years to take advantage of deductions your accountant might have previously missed.
Conducting the survey
The size of your investment property will influence the cost of your depreciation report. Typically you’ll need to pay a few hundred dollars for a two-bedroom apartment, more for a larger place.
The surveyor will need to enter the property to complete the inspection, so you’ll have to notify your tenants and coordinate with them. The cost of the report is tax deductible, and some companies even offer a money back guarantee if they can’t provide you with a substantial tax benefit.
In most cases, filing a property deprecation report is worth it in terms of the money you’ll save, even if you have invested in an older or lower priced home.
If you are a property investor looking to refinance a home or you need home loans for additional properties, let us help. Contact Australia Credit and Finance for your best possible rate.