Investment property tax depreciation allows you to claim a tax deduction for the wear and tear of the structural elements (the actual building) and plant and equipment (fixtures and fittings) of an investment property.
By claiming depreciation as a tax deduction you can lower your taxable income. This in turn reduces the amount of income tax you need to pay, leaving more cash in your pocket each year. You can use this increased cash flow to pay down debt, create new investments or simply enjoy more disposable income. It’s fantastic!
You can maximise investment property tax deductions by considering the following:
- Engage a registered Quantity Surveyor
To maximise investment property tax deductions you need a detailed tax depreciation schedule. A tax depreciation schedule summarises the tax deductions you can claim on your investment property each year for up to 40 years. ATO rules insist that a tax depreciation schedule be compiled by a registered Quantity Surveyor, who will inspect your property and ensure that every depreciable item is identified, evaluated and included in your depreciation schedule.
- Claim small items immediately
To offset the usually higher cost of an investment property in initial years, claim small items as soon as possible. Items not part of a set under and under $301 dollars can be written off immediately, as can your portion of common costs relating to strata units, such as things like door closers, lighting, carpets and a number of assets as long as they’re also under $301 dollars.
- Furnish your investment property
Furnishing a property can often help achieve a higher rental return. Even better, furniture in an investment property is depreciable and you can claim a large chunk of it in the first year. Speak to your accountant and property manager about whether this is a profitable option for your property.
- Claim scrapping value when upgrading or renovating
Scrapping, or residual value, is a depreciable element that many property investors miss. You can claim a tax deduction for fixtures and fittings that are replaced during an upgrade or renovation. Have a Quantity Surveyor review your renovation plans and estimate what you will “lose” when throwing out old carpets, kitchen cabinets or other fittings. This “scrapping” amount can be claimed as a tax deduction.
Claiming depreciation expenses at tax time can put a LOT of money back in your pocket. Speak to a Quantity Surveyor about your investment property and get your extra cash flow working for you.