Understanding Tax Depreciation Claims as a Property Investor

  • Posted 24 Nov

Understanding Tax Depreciation Claims as a Property Investor

As a property investor, did you know that there are several deductible items you can claim against your personal tax return?

By understanding what these are, you could be able to reduce your tax return requirements and potentially offset some of your investment property expenses.


Depreciation: What’s Available?

There are two types of depreciation deductions that property investors can access. These are:

  1. Division 40 plant and equipment depreciation
  2. Division 43 capital works deduction

Let’s look at these in a little more detail.


Division 43 Capital Works Deduction

This relates to all structural components of your investment property. This includes things like walls, doors, concrete floors, the roof and tiles. Generally, this covers almost everything that is part of the house itself, including any renovations (structural) made to the property, either before or after you purchased it.

Depreciation on this division allows you to claim up to 2.5% of actual construction costs at the time it was built, for up to 40 years.

As an example, say your investment property was built in 2013, with structural costs of $500,000, you would be able to claim a 2.5% deduction worth $12,500 each for the next 40 years.

There is a clause to this division. This only applies to properties that were built after September 15, 1987. If your property is older than that, then you won’t be able to claim the capital works deduction.

This is where the Division 40 plant and equipment deduction would be to your benefit, as it applies to older properties as well.


Division 40 Plant and Equipment Deduction

This particular deduction relates to plant and equipment that are removable and unattached items within the investment property.

This is great news for those with older-style properties, because you can gain significant savings with this deduction.

Here are some of the deductible items you might find in your investment property and the tax write-off periods that apply:

  • Kitchen appliances (10-12 years)
  • Ceiling fans (5 years)
  • Smoke alarms (20 years)
  • Carpets and blinds (10 years)
  • Garden watering systems (5 years)

This is just a sample of what you could access for deductions. The ATO says that there are 6000 different plant and equipment assets that could be claimed on your investment property.

Because there are so many options to sort through, your financial advisor or accountant is the best person to help you figure out all of your property’s depreciable items.


Who to Ask for Advice?

In order to maximise your depreciation, you need the right information. It could be beneficial to create a depreciation schedule on your property before you purchase it.

A qualified quantity surveyor can do this for you. Depreciation is key to ensuring you get the most out of your investment property, so it pays to have all the information upfront.

If you need help with your investment loan or refinancing your home to access equity to purchase an investment property, contact the team at Australian Credit and Finance today, we are here to answer all your mortgage loan questions.

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