How to Maximise the Depreciation of Your Investment Property
Today, our nation has roughly 2.2 million property investors, collectively owning 3.25 million investment properties. While any investor likes to make as much as possible, a staggering 70% of property investors don’t maximise their property’s depreciation to lower their tax burden and maximise cash flow.
If you’re one of the 70% not currently claiming investment property depreciation, we’ve compiled this quick guide to ensure you’re not needlessly leaving thousands of dollars on the table.
What is Investment Property Tax Depreciation?
Before giving you a quick rundown of the potential savings you can accrue via property depreciation, it’s worth explaining what it is.
In short, you can make a tax deduction on items that naturally depreciate in value over time. As your investment property ages, its infrastructure, construction elements, and internal fixtures and fittings will naturally lose value.
You can claim the loss of that value as a tax deduction each year, leaving you with more cash in your pocket.
How Claiming Investment Property Depreciation Works
Armed with the “what”, it’s time to dive into the “how.” According to the Australian Taxation Office (ATO), there are two main categories in which we can claim back depreciation tax deductions as property investors.
They are as follows:
- Plant and Equipment: This depreciation category is for all the fixtures and fittings contained within an investment property, such as carpets, curtains, blinds, appliances, lighting, etc.
- Capital Works (Building Allowance): This depreciation category refers to the construction of the building itself and any attached elements, including but not limited to bricks and mortar, retaining walls, flooring, electrical wiring, plumbing, etc.
The depreciation claims that can be made are based on the “effective life” of an item. For the purposes of the second depreciation category (capital works), residential buildings constructed after 1985 are considered to have a useful life of 40 years, giving you an effective depreciation rate of 2.5%.
For the first category, effective life depends on the item in question. For instance, your flooring will likely have a longer effective life than your appliances. Using carpet as an example, let’s say it costs $6,000 when laid and has an effective life of ten years. In that case, you could deduct $600 (10%) each year for the next decade.
Why You Need A Professional Tax Depreciation Schedule
To extract the highest possible depreciation deductions from your property, you will need a professional investment property depreciation schedule. You’ll need a qualified quantity surveyor to create one, as they’re the only professional recognised by the ATO to carry out accurate depreciation schedules for tax purposes.
These schedules will lay out all items eligible under Australian Law for depreciation, their effective lives, and their respective depreciation rates. Your accountant can then use these to make the necessary deductions when lodging your tax return.
We always advise our clients who have recently taken possession of an investment property to instruct a quantity surveying firm to conduct one of these assessments as soon as possible. They can sometimes be the difference between a negatively geared property and one producing positive cash flow.
Better yet, firms often guarantee that their first-year deductions will outweigh their fee – otherwise, you receive the schedule for free. As far as we’re concerned, it’s a no-brainer as a property investor, and we already work with respected and reputable firms in the Southeast Queensland area.
The Importance of Expert Guidance in Maximising Your Property’s Potential
As a property investor, understanding and utilising tax depreciation to its fullest can be a complex but rewarding process. At Living Property Management, we are dedicated to guiding you through this journey. Our expertise is not just in managing properties but in ensuring that every aspect of your investment is optimised for maximum returns.
We understand the local market dynamics in Southeast Queensland and work with a network of trusted professionals, including quantity surveyors, to ensure your investment is as profitable as possible.
So, whether you’re new to property investment or looking to improve your existing portfolio’s performance, the Living Property Management team is here to help. Call us today on 1300 885 624 to discuss how, together, we can extract every penny out of your property investment.