Thing You Should Know About Rental Property Tax Depreciation

Claiming property depreciation on investment/rental property is one of the most essential part of the property investment business. But the legalities associated with property investment property depreciation sometimes confuse the property owners.

In order to claim tax deductions for property depreciation you need to obtain a tax depreciation report for each rental property. As directed by the Australian Taxation Office (ATO), these reports or depreciation schedules must be prepared by a qualified quantity surveyor. Quantity surveyors are registered tax agents, who have the appropriate knowledge and expertise needed to prepare comprehensive tax depreciation report.

It is considered that as a building gets older, the items inside it wear out with time and their value depreciates.

Therefore, the ATO allows investment property owners to claim a tax deductions for the building as well as the equipment and plants within it. Any investment/rental owner can claim these deductions. The deductions for investment property depreciation, actually reduce the property owner's taxable income, which ultimately increases their profits! When preparing a tax depreciation schedule, the quantity surveyor takes two main elements into consideration:

Capital Works Allowance (Division 43)

Plant and equipment item (Division 40)

Capital Works Allowance (Building Write-Off)

This deduction is available for the structural element of a building that includes irremovable fixed assets. The capital works allowance is generally referred to as the ‘building write-off’. Not all properties qualify for this allowance, and deductions can be claimed only for the period the property is rented or is available for rent. On the basis of the building’s age you can claim 2.5% or 4% of its original construction cost.

If the investment/rental property was built after 18 July 1985, then you are entitled to claim a capital works allowance of 2.5% or 4% for 40 or 25 years respectively, from the date of its construction. All income-producing properties, restorations/renovations, extensions and fit-outs that have commenced construction within the exact dates should qualify for the write-off allowance.

Plant and equipment item Depreciation

The property depreciation deduction for plant and equipment item is available for the assets that depreciate at a faster rate than the building. An effective life has been set for each plant and equipment item by the ATO, and the depreciation on that item is calculated accordingly. Following are some of the plant and equipment item that are considered for investment property depreciation, and are commonly found within a property:

hot water service

vinyl

carpet

floating timber floors

furniture

range hoods

clothes dryer

smoke alarms

blinds

curtains

light shades

security systems

ceiling fans

exhaust fans

washing machines

air conditioners

ovens

dishwashers

microwaves

cooktops

Therefore, it is crucial to consult a Quantity Surveyor for preparing the depreciation schedules of your property.

HOW A $17,537 CASH INVESTMENT BECAME A $4 MILLION PROPERTY GENERATING A YEARLY NET INCOME OF $315,000!
(AND THE STEP-BY-STEP DETAILS OF OTHER OUTRAGEOUSLY PROFITABLE REAL-LIFE PROPERTY DEALS)

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