What you Need to Know About Investment Property Depreciation
One of the best property investment tax breaks available, depreciation can be claimed against the assessable income of anyone who purchased their property for investment purposes. In order to receive some substantial savings by claiming depreciation, you simply need to arrange an inspection of your property with a qualified quantity surveyor who will then provide you with a depreciation schedule.
What Is Property Depreciation?
Property depreciation is used by investors to offset the decline in value of their investment property against their taxable income. Rather than claiming one big deduction the year you either purchase or improve your investment property, depreciation allows for the deductions to be distributed across the useful life of your property.
What Can I Claim Through Depreciation?
Investors can claim tax deductions for the decline in value of the building structure as well as all of the plant and equipment assets such as dishwashers, ovens, floor coverings, and more. While only properties which were built after July 1985 qualify for both of these deductions, the savings can still be quite significant for older properties as they can still claim depreciation for plant and equipment. You can’t depreciate the land itself or any activities that are considered as part of the land, such as any costs incurred for planting, clearing, or landscaping.
How Do I Get A Depreciation Schedule?
If the construction costs for your investment property is unknown and/or it was built after July 1985, it is an ATO requirement for a qualified quantity surveyor to schedule a site inspection and create your depreciation schedule. The quantity surveyor measures, documents, and photographs all aspects of your property that are eligible for deductions.
How Much Does A Depreciation Schedule Cost?
Preparation costs for a depreciation schedule will vary depending on many different factors, from the type of investment property, how big it is, where it is located, and other factors. The majority of leading quantity surveyors have a money back guarantee which would save you double your fee in the first year, or the schedule is provided for free. Don’t forget that fees charged by quantity surveyors are 100% tax deductible, so you literally have absolutely nothing to lose and only deductions to gain.
When Should I Get A Depreciation Schedule?
You should arrange quantity surveyors to create a depreciation schedule for your investment property immediately after settlement. Arranging a site inspection for as soon as the property is settled is the best way to ensure that your depreciation schedule has the most accurate values, as well as reducing disruptions if you have tenants moving in. Depreciation reports for income-producing properties should also be created both before and after any scheduled renovations are done because they can often provide significant deductions in tax.
To Sum Up
Depreciation is a valuable method of reducing your tax obligation each year so that the purchase cost of your investment property can be spread out over decades. Just be aware that if you sell your property for more than the depreciated value, you will need to pay depreciation recapture tax for the gain.