Investment property tax depreciation deductions can have a huge impact on the cash flow and profitability of your property investment.
Depreciation equates to ‘lost value’ due to the wear and tear of capital works (structural building elements such as concrete and roof tiles) and to plant & equipment (fixtures and fittings such as carpets, ceiling fans and window coverings).
Claiming tax deductions for investment property depreciation effectively lowers your annual taxable income – and therefore your annual tax bill – putting more cash in your pocket each year.
As the second-biggest property tax deduction (after interest expenses), it’s surprising how many property investors completely overlook depreciation deductions or fail to claim all the deductions they’re entitled to.
What if I haven’t been claiming depreciation deductions?
Your accountant can amend your tax return for the last two years to add investment property tax depreciation deductions. But first, you’ll need to engage a Quantity Surveyor to inspect your property and complete a tax depreciation schedule.
A tax depreciation schedule summarises all the deductions claimable for capital works and plant & equipment and maps out how much depreciation you can claim each year for 40 years.
Your accountant will use this tax depreciation schedule to amend your tax returns for the previous two years and to complete tax returns in the future.
Can I backdate more than 2 years?
Possibly, but probably not. While the ATO will happily amend tax returns from the previous two periods, they are quite strict about the two-year time limit.
That said, there are different rules for individuals, companies, trusts and self-managed superannuation funds so it may be worth asking your accountant to seek further amendments if you’ve held an investment property for longer than two years.
Don’t overlook depreciation
Engaging a Quantity Surveyor should be at the top of your “to do” list when purchasing an investment property. Depreciation deductions can contribute thousands of dollars to your investment portfolio each year.
Depreciation deductions often mean the difference between a negatively-geared and positively-geared investment property and can literally save you tens of thousands of dollars across the lifetime of your investment.
Speak to a registered Quantity Surveyor to make sure you’re claiming every investment property tax depreciation deduction you’re entitled to.