What is tax depreciation and how can I claim it at tax time?
If you hold a residential investment property, you will almost certainly have some deductible depreciation to help reduce your taxable income and maximise your returns.
Tax deductible depreciation is just one of the many benefits you reap from holding an investment property, in fact some investors will take depreciation into consideration before even purchasing their next investment property.
The depreciation on a property is essentially a non-cash tax deduction (i.e. you don’t keep paying for it on an ongoing basis) that allows investors to offset the decline in the property’s value from their taxable income.
Australian law allows investors to claim tax deductions on both the decline in value of the building’s structure and items considered permanently fixed to the property and the decline in value of plant and equipment assets found within it.
Some examples of depreciable items are ovens, dishwashers, carpets, and blinds.
As your investment property ages, you may have additional general wear and tear. This can be also be deducted as taxable depreciation in your tax return.
How do I know what my tax deductible depreciation is?
If you are unsure how to calculate the depreciation on your investments, all you need to do is engage a qualified quantity surveyor to prepare a ‘Tax Depreciation Schedule’. This is a comprehensive report which outlines all depreciable deductions claimable for your investment property and also serves as independent supporting evidence to provide to the taxation office. If your investment property is new, or you are able to produce all your documentation, the quantity surveyor may not even require an inspection of the property.
The tax depreciation schedule can be prepared as a forecasted depreciation report covering up to forty years.
If you have renovated your property, you will be able to claim your depreciation as well as adjust your tax depreciation schedule to include the value of the renovations which will also be depreciated over time.
You will need to keep records on how much you spent on the renovations as this information may be requested from the Taxation Office.
If you are looking for a Buyers’ Agent to assist you with purchasing a home or investment property in the Sydney, Brisbane and Newcastle regions, please get in touch with Aus Property Professionals here or give us a call on 1800 146 837! We are Australia’s leading equity growth strategists.