Depreciation is the key to maximising tax deductions for an investment residential property. Here are five depreciation tips to assist investment property owners.
1. Old and New Properties Depreciate
An investment property does not have to be brand new. Both new and old properties will draw some depreciation deductions. A common assumption is older properties will attract no entitlements. It is worth making an enquiry about any property. To maximise your tax deductions you can obtain a quantity surveyors report, this will show in detail the value of the deduction to which you are entitled. Depreciating assets produce a partial tax deduction as these assets decline in value over time, usually more than one year.
2. Deductions are available for 40 years.
The Australian Taxation Office (ATO) has determined that any building is entitled to capital works deductions from the date construction was finished up to a maximum of 40 years. Consequently, property investors are usually entitled up to 40 years of property depreciation on a brand new building, whereas the remainder of the 40 year period from the building completion date is claimable on older properties. Residential properties built after July 1985 qualify for both Building Allowance and Plant & Equipment claims.
3. Property depreciation schedule
There are 2 key sections
• Plant & Equipment
• Capital Works Deductions.
Plant & equipment
These are pieces which are commonly powered fixtures and could potentially be removed from the building instead of more permanently fixed structures in the building. Pieces which are electronically operated are deemed plant items, although they can be fitted to within the building. For example, Plant & equipment pieces can consist of hot water units, air-conditioning units, cooktops/range hoods, carpets, garage door engines, blinds, fridges, ovens, washing machines and unattached furniture.
The Capital Works depreciation is a deduction for the physical element of a building including items that are fitted to the building. It is based on the past building costs of the property and contains supplies such as bricks, cement, wiring, guttering, flooring and walls plus items like doors, tiles, windows and toilets.
4. Use a certified expert
The ATO has identified Quantity Surveyors as appropriately skilled to assess the original construction costs or estimate construction costs where those costs are unknown for depreciation purposes. Quantity Surveyors are connected with industry regulated bodies and can obtain access to the most recent information for your investment property. Furthermore, Quantity Surveyors fees are 100% tax deductible.
Please note – your accountant, real estate agent and property valuer are not qualified to make this assessment in accordance with the ATO.
5. Prior Year Claims
Your accountant can make amendments to previous year tax returns , for example , to include allowable deductions not previously claimed. Your accountant can advise the details and process.
This article is for general information only. Please seek professional advice from your accountant or contact the ATO for further information about your personal circumstances.