If you own investment property, the prudent course of action is to have an up-to-date tax depreciation schedule that gives an accurate picture of how much you may be able to claim in tax deductions.
A tax depreciation schedule can be used to determine how much of this can be deducted from your taxable income, to help make up for any losses on the value of your assets.
The Extensive Range of Depreciable Assets
After interest, property depreciation is often the second-largest tax deduction. However, for property investors looking to claim the greatest amount available to them, there are a variety of factors to take into account.
Property depreciation falls into two categories: Plant and equipment and capital works deductions.
The value of the investment property, as well as fixtures that are permanently fastened to it such as the roof, doors, and sinks in the kitchen and bathroom, are covered by capital works.
Plant and Equipment
Other aspects of the property are considered replaceable rather than permanent, so they are classified as plant and equipment. Carpets, the dishwasher and the oven are just a few of the more than 6,000 items that can be covered by the ATO's plant and equipment depreciation category.
There are many gradations of equipment depreciation for each group. For instance, carpet is thought to have an eight-year anticipated lifespan and a 25% diminishing value (DV) rate.
More durable materials, such as tiling and floating floors, experience a lower amount of wear and tear every year, so they have a lower DV rate to represent the longer useful lifespan of the asset.
What Is a Tax Depreciation Schedule?
A tax depreciation schedule is typically used to work out the depreciation on your property. The depreciation schedule depicts the anticipated depreciation over a certain period of time, from the original value of the property.
As long as the property meets three requirements, you may be eligible to apply for a tax deduction. The depreciation deduction applies to both residential and commercial properties.
- The property that you want to deduct for depreciation must belong to you as the taxpayer.
- The property must be currently being used in a way that generates money.
- The useful life of the property must be known or calculated by a qualified expert.
Is My Property Too Old to Deduct Its Depreciation?
Generally speaking, any residential investment property constructed after September 1987 qualifies for capital work depreciation. This can be claimed at a rate of 2.5% for up to 40 years.
Other property investors may also be able to deduct that depreciation, if they own real estate that was constructed prior to 1987 but it has undergone significant renovations since then.
However, as a result of legislative changes made in 2017, investors are no longer entitled to deduct the loss of value of previously used plant and equipment found in second-hand residential buildings.
Will an Inspection of the Property Be Required?
The property inspection will have to be conducted by a certified quantity surveyor, who is qualified to make a judgement on any structural alterations or additions done to the investment property.
It pays to turn to the professionals to maximise how much you can claim on your property depreciation. In this case, that means consulting a certified accountant as well as a quantity surveyor.
While your accountant will be able to oversee other aspects of your tax deductions claims, a quantity surveyor is the one who is qualified to create a tax depreciation schedule. This depreciation schedule is necessary to make sure that you claim the appropriate amount of depreciation, in the correct way.
Employing the services of a quantity surveyor will give you access to a larger income tax deduction.
The Potential Savings of a Tax Depreciation Schedule
With so many potential tax savings at stake, there is also no compelling reason not to claim depreciation as a tax deduction.
Without undertaking a professional assessment of your investment property assets, you may be losing out on further financial benefits. This applies across both residential property depreciation and commercial property depreciation.
To get started, reach out to the experts on our team to ask about your tax depreciation schedule. We take great pride in our in-depth understanding of the depreciation of real estate.