MCG QUANTITY SURVEYORS BLOG
Unit Renovation Case Study
Our latest case study is a cracker. It showcases what can be done within a small space and smashes a commonly held myth that a property built before 1987 will never have any depreciation deductions.
The unit was in Mona Vale, in Sydney’s beautiful northern beaches. It is a two bedroom, one-bathroom unit in a three level building complex built in the late 60s. As far as common area assets, there was next to nothing to claim, a few door closers, light shades and such. Here are a couple of before shots of the unit.
The total value of the work was just over $120,000 and included the following plant and equipment assets such as floor coverings, window furnishings, kitchen appliances and some furniture items.
We’re often asked on the phone what the potential depreciation deductions might be for a property based on say a 50k renovation, or a 150k renovation. There’s no magic formula, but we do know that so long as there are no non-depreciable components such as soft landscaping, the absolutely minimum rate of depreciation for qualifying renovations is 2.5% of the value each financial year for 40 years. So it’s impossible to get less than $2,500 per year of deductions on a 100k renovation. But that’s never going to be the true value of the deductions. With every major renovation, we’re going to see new plant and equipment items like carpets, blinds, ovens and so on. All of these assets are considered to have lesser effective lives than the building structure, which affects their rate of depreciation. For example, carpet will generally depreciate at 20% depending on its value, and other assets as high as 40%. We’re also going to see assets qualify for an immediate write-off.
So using this case study of say 120k, we know that the minimum has to be $3,000 per year. As a rough guide, we can usually triple that figure in the first year if we know the kitchen and the bathroom were renovated.
What did this unit achieve? Well in the first full year of claim we found $14,505 worth of depreciation deductions, and over $10,000 in the second year. A pretty solid result from a depreciation standpoint. More importantly though, how does it look?