Maximise the tax depreciation benefits of an investment property
While many property investors consider location, purchase price and tenanting ability when contemplating an investment property purchase, depreciation is often overlooked as an important factor. Depreciation can help unlock the cash flow potential within an investment property, often resulting in thousands of additional dollars for the investor each financial year.
Considering the following factors will help property investors understand how property tax depreciation can change their cash flow position:
The age of the property
Both new and older properties will attract some depreciation deductions, although generally, newer properties have newer assets and a higher un-deducted value resulting in higher depreciation.
The type of property
The owners of units and townhouses that are part of a strata or community title may be entitled to claim common property benefits in addition to the unit’s depreciation benefits. Examples of common property assets include driveways, fire equipment, lifts and swimming pools. These will be included in the depreciation schedule when applicable. Usually when common property deductions are available this will result in higher depreciation claims.
The amount of plant and equipment
Plant and equipment includes items that are easily removed from the property or not permanently fixed to the structure. Examples include light shades, stoves, air conditioning systems, blinds and carpet. These items can be depreciated at a higher rate than the building and add significantly to the depreciation claim. More plant and equipment generally means higher depreciation claims earlier.
Different asset types will affect the depreciation deductions available. For example, when looking at flooring valued around $2,000 the different types have a very different result.
The same applies with air conditioning. Below are the expected deductions for a property owner who owns $5,000 of cooling equipment:
Always consult a depreciation expert about an investment property’s depreciation entitlements. Taking full advantage of the available tax benefits on an investment property can give you tax deductions which can turn your cash flow positive property into a negatively geared investment, reducing your tax along the way.
Although there are other organisations, we recommend BMT Tax Depreciation to our clients. They offer obligation free advice about a property’s depreciation potential and an Australia-wide service.
If you’d like to know more about maximising your depreciation claim, then call Noel or Amanda on 03 9585 7555 oremail us.