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Tax Depreciation for Investment Properties

Most investors are aware that their property’s value will only decrease over time. But many investors are not aware of the benefits of this depreciation on investment property. Depreciation can help an investor claim tax benefits. The loss due to depreciation would be partly offset by the tax allowances claimed. A typical rental or investment property would have several components. Some would be fixed and part of the property. Some would be attached or constructed additionally. A property depreciation schedule would enable the right tax breaks to be computed. Let us see how an owner can take the help of companies like Deppro Perth to do this.

The Need for an Accurate Schedule

Different depreciation rates apply to different components of a property. As per Australian tax rules, each type of attracts different tax allowances – a property owner might not have complete knowledge of this. It is also time-consuming and tedious. That is why property owners often entrust the job to competent agencies. This ensures that the tax breaks are accurately claimed.

Calculation of Depreciation on Investment Property

A good agency would have competent Deppro quantity surveyors. These surveyors assess every small and big asset included on the property. This is done in strict accordance with ATO guidelines. The rules laid down by ATO often undergo revisions: Deppro quantity surveyors are always completely up to date with such changes. Therefore, you are guaranteed an accurate calculation of your depreciation with Deppro surveyers. Once depreciation is accurately calculated, the right tax deductions can be claimed.

Investors can easily claim the benefits of depreciation on investment property; these benefits accrue through allowable tax deductions. A well-trained and knowledgeable quantity surveyor from a reputable company can help claim the maximum tax benefits. This also ensures that tax benefits allowed by law are not missed.

Do You Need to Make Estimated Tax Payments?

You might be planning to pay advance tax or it might be time for the last tax submission date. Whatever your situation, it is always useful to estimate tax returns in advance, to ensure you plan your finances carefully. Tax returns can have several aspects, depending on your profession and your source of income. So keeping some time in hand is a good idea. Not to mention, you may be eligible for tax refunds from earlier years, so you should take that into account in your tax estimate as well.

Impact of Property on Tax Returns

If you are the owner of a rental or investment property, it will impact your tax liabilities. Every property attracts depreciation as per ATO rules. However, there is an upside, as property depreciation makes you eligible for tax allowances. This reduces your tax when you file your tax return Australia. But to ensure you get this reduce in tax, it is crucial your depreciation schedule has been made properly. This helps calculate the correct tax breaks you are eligible for. However, the current applicable laws must be considered when making the schedule. This will ensure that the property owner doesn’t pay double tax and assist with claiming the maximum deductions possible.

How to Estimate Tax Returns with Correct Depreciation

To estimate Tax Returns with the accurate depreciation, a property and all of its assets must be correctly assessed. This is where a reputable company like Deppro Victoria can help. They have qualified expert quantity surveyors on their rolls; they can help you to make the most accurate property depreciation schedule. Firstly, the surveyors make several field visits to take accurate measurements. This is then used to quantify each asset’s depreciation for each year.

When you wish to estimate tax returns, you need to take depreciation and refunds into account. Reputable companies with skilled staff can help you do these calculations. Instead of wasting your own valuable time, these companies do it all for you!

Commercial property renovation hacks that add value

As an investor, you want to be up-to-date with market trends and find ways to bring in tenants to your commercial properties. If they’ve sat bare for a couple of years, and looking dates, then it’s time to get renovating. We have a couple of hacks so you can focus on the right areas, where you can make the most money off your depreciation schedule.

 

Bathrooms

Not just any type of bathroom with a few toilet stalls and basins; looks definitely matter. Offices, shops and restaurants are becoming fancier with their designs. Even gyms have bathrooms worthy of an interior design featurette.

A gym shower and sauna in the USA

Bathrooms are major selling points for tenants in both residential and commercial property. Natural wood elements and lighting paired with neutral tiles is a common combination that never fails to impress. If you own an office block and have the room, fully equipped bathrooms are an excellent selling point. Workers often hit the gym before they make their way to the office. They’ll need a place to freshen up before the day ‘officially begins’.

 

Kids play area

Employees have families, as do potential visitors. And not everyone can bring in a babysitter or find a daycare. Having am on-site kids play area in a commercial property isn’t that unusual. Shopping centres have done it before, and the trend is slowly spreading to gyms and workplaces.

 

Kitchenette

Definitely a feature that will attract tenants. They need a place to keep their food, make their coffee and take a break from their desks. The kitchen is where you can make money in terms of the plant and equipment items in place there. This includes the dishwasher, espresso machine, microwave, sink and fittings.

Outdoor entertaining

Humans need sunlight and fresh air; what better way to access it at work than an outdoor area? When you’re renovating the property/making an extension, turn the extension into a patio with some hedges, a barbecue and some outdoor furniture. The barbecue and the furniture can be depreciated.

 

TVs

Yes, we are giving you an excuse to go out and buy some big screen televisions. Modern properties have a showreel on their TV screens, usually placed in the foyer and meeting rooms.

 

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Depreciation And Real Estate Mistakes That Will Lose You Money

Mistakes are part of life, but you’ll be kicking yourself if they lose you money. Make sure you avoid the ones below.

 

Rent at mates rates

It’s natural to want to help your mates out; it’s what friends do. But there are some situations where mates rates should not apply, and that includes property. The reason investors get into the property market is because they want to make an income. Friends can certainly live in properties you own, but be firm when you say they must pay rent. You’re running a business, not a charity.

Don’t mix business with mates; you can’t be a friend and a land lord

Depreciation DIY

Don’t attempt this unless you’re a quantity surveyor. These people work out costings for building projects and have a high level of education. They’re part of an official body (Australian Institution of Quantity Surveyors) that ensures members are aware of the latest industry standards and participate in the training required to keep up their skillset.

Long story short; unless you have a Bachelor of Urban Development (Honours) (Quantity Surveying and Cost Engineering), leave it to the experts. Book an appointment here to get a qualified surveyor in for a visit.

 

Saying ‘that’s not worth anything’

Just because some of the properties have a few decades on them doesn’t mean they aren’t worthless. Some capital works are still eligible for deductions.

Items that are worth $300 or less are eligible for immediate deduction; think the rubbish bins, smoke alarms, children’s play equipment and the curtains. Other overlooked deductions include spa baths, bathroom and kitchen appliances and even the swimming pool are items that can be claimed on a tax depreciation schedule.

Old doesn’t equal worthess

Putting it in the wrong category

Yes, this is one of the dangers of DIY depreciation. In the schedules that quantity surveyors create, there’s two categories; capital works and plant and equipment. They’re also known as Divisions 43 and 40, respectively.

Capital works include items that are built into the property itself; wiring, driveways, fences and some landscaping. Plant and equipment include things you can easily remove from the property such as furniture and carpeting. If you own a commercial property the desks, blinds and shelves can be claimed. You can find out more about deductions on the ATO website.

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The amazing tax benefits from rental properties you probably forgot about

Thinking about tax is much more fun when you’re thinking about tax benefits. Property investment is a tricky game to play, but smart investors reap the rewards when they remember to claim on the below items.

 

Tax depreciation

The tested-and-true method, and Deppro’s speciality. Getting a tax depreciation schedule ASAP is a guaranteed way of earning back the money from your portfolio. It’s one of few tax benefits that doesn’t discriminate.

It’s best for the quantity surveyor to do their inspection before the tenants move in. When the investor does renovations, they’re obliged under ATO law to tell the surveyor how much was spent. Measures like this make sure that the maximum benefits are awarded.

The depreciation fee is a tax benefit; it’s fully deductible!

Capital gains tax

Yes, there are some benefits to capital gains tax, particularly thanks to the exemptions available!

It’s not available to your entire property portfolio, typically the exemptions apply to the home you actually live in. You can get a full exemption if you live in the home for at least 6 months after buying and can prove it’s your primary residence.

Another full exemption is possible if you own the home but have to move thanks to special circumstances. You can lease out the house during this time for a maximum of six years before you have to pay some CGT.

 

Claim against the mortgage

You probably think that ‘mortgage’ and ‘tax exemption’ don’t go together in the same sentence but it’s possible! But tax benefits like this come with conditions.

Investors with interest-only loans can claim against it come tax time. Interest is the money you’re making on the house/commercial space. 

 

General upkeep fees

It’s the owner’s responsibility to make the property presentable. Because these services are of benefit to the rental property they’re possible to claim. Examples of maintenance fees include cleaning, fixture repairs, pest control, gardening, and more.

 

Management costs

You have to spend money to make money as the saying goes. Real estate advertising and fees paid to the property manager can be claimed as tax benefits alongside other management costs. Some of these are overlooked and owners potentially miss out on thousands.

  • Body corporate
  • Council fees
  • Land tax
  • Legal fees

Cleaers, real estate services, property management services…all eligible for tax benefits

 

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Tax depreciation, property investment and our other greatest hits; 2017 in review

2017 was a year of rising property prices, people educating themselves about property investment, and a massive change in tax depreciation laws. We’ve collected some of the best articles that hit our news section in 2017 and bring them to you here.

 

The release of the 2017-18 Federal Budget sent investors into a tailspin, and for good reason. It doesn’t matter if you buy commercial properties or homes to let. These changes apply to everyone.

 

smashed avo and property invesment

It’s the debate that just won’t die! A scathing critique by property expert Tim Gurner about Millenial’s ability to save for their first home became a repeat headline over the year. Now smashed avocado is a tangible comparison to property prices. We even found a ‘luxuries’ calculator showing people how much a house deposit is equal to in yoga classes, trips abroad, and takeaway coffees.

 

When a mate tells you they invest in property, the likelihood is they’ll only have one or two items in their portfolio. Less than one percent of investors have diverse holdings of six or more assets. If you want to emulate the one percent, educate yourself here.

 

It’s common practice to buy a home, renovate it, sell for a profit and then repeat the cycle all over again. From curb appeal to the garage, we found 8 inspiring builds and overhauls to help your project along.

 

From an apartment block built for retirees in South Australia to a two bed, two bath home with a pool in the Northern Territory. We found properties from each state that you could snap up for half a million dollars or less (at the time the article was published).

 

Tax depreciation specialists, accountants, and property managers are part of your team when you get into the game. Use this article to give yourself a basic understanding about what a great manager should do before you go hiring that guy off Gumtree.

 

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The one depreciation law change you absolutely need to know

The 2017/18 Federal Budget brought about some changes that directly affect investors looking at properties to buy in the future. Starting from May 9th 2017, the ability to claim depreciation on certain assets has changed.

From July 1, 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties.

 

So what does this mean?

When you buy a property from a previous investor, you can’t claim the plant and equipment deductions. Capital works aren’t affected, so you can still earn money back from this.

Plant and equipment are the ‘easily removable’ items located in the property such as bins, white goods and any other furniture that you bought for the home. Remember  that anything $300 or less can instantly get written off as an expense.

 

I bought a property before the May 9th announcement

Then you’re in the clear. You can still claim plant and equipment depreciation if you settled the home before 7:30 pm on May 9th.

If you settled after, then unfortunately you’re out of luck. It doesn’t matter if those taps or that couch are a few months old. To claim, you must ‘incur the expense’ yourself.

 

So what CAN I do?

Capital works depreciation is still claimable, so investor’s don’t totally lose out. You can also pay less capital gains tax when the property sells for a profit. Simply subtract the resale value of the plant and equipment from the time of purchase to how much it’s valued by the time you sell.

Purchase value – resale value = CGT offset

Investor’s won’t have to do the maths themselves, however. The quantity surveyor writes these calculations on the depreciation schedule.

 

Do I need to rethink my investment strategy?

You certainly need to scrutinise potential purchases a lot more closely. Your aim is to generate income from a rental property, whether commercial or residential. There’ll always be a debt and recovery period before you make a profit. With the new law changes, investors will look at new homes now more than ever over second-hand properties.

This is how to get your best tax return yet

Tax-time isn’t something to fear if you have your affairs in order. At the end of it you get something even better: a tax refund! The ease of filing your your tax return depends on you and how you handle your affairs. The amount you get back depends on what you know you can claim. We have some advice to help you handle both.

 

Deppro handles property depreciation reports, not tax, but we know a thing or two about the latter. ‘Tax depreciation’ is the same thing as property depreciation. It’s part of your annual taxable income.

 

The cost of a depreciation schedule is actually fully deductible, along with whatever depreciation amount you can claim that year. That’s more money going back into your bank account!

 

Investment property is a source of income, and you must list it on your tax return. Depreciation is the ‘extra’ essential that can push you further to your goal. Imagine paying off your loan or now having the potential to buy another property. Depreciation earns investors tens of thousands of dollars over the time they hold the assets in their portfolio. That’s just for one property. Imagine being in the 1% club and having six or more.

 

To get your best-ever tax return, you need your accountant on your side. You would’ve handed over your tax depreciation report to them, anyway. It’s their job to file a return that gets you the best amount back possible.

 

Before you meet with them, it’s possible to estimate how much you’ll get back. The ATO releases a new edition of their tax return estimator every year, and it’s free to use. You need:

  • Your PAYG statement (for gross income and tax withheld)
  • A list of your tax offsets and what you can claim
  • Calculation of your Medicare levy
  • To know your residency

If your numbers are accurate and you have the correct information, what you get from your accountant won’t be much different. If at all.

 

To get your best-ever tax return, you must be organised. When the end of financial year comes, you need these tools in order to claim:

  • Your accountant
  • PAYG statement
  • Depreciation report
  • List of tax offsets

Not all tools are free, but they pay for themselves in the end thanks to that amazing tax refund!

A beginner’s guide to a depreciation schedule

A depreciation schedule is a necessary tool that every property investor or business owner must have if they want to pay less tax and recover debt faster. It has been said that in some circles up to 80% of investors don’t know that they can depreciate their investment property, some don’t even understand what depreciation is.

 

Claiming the property and the items inside it on your tax return will give you a higher return, but not straight away. Items depreciate over time, and their depreciation costs will increase the longer an investor owns them because they’re given a ‘lifespan’ for their usefulness. Any item, from the fire alarm in the ceiling to the carpet on the floor, depreciates in value. Items under $300 are instant write-offs.

 

The depreciation schedule

It always contains two categories: capital works, and plant and equipment. Capital works are part of the property itself and any renovations done to the structure. Work done to the kitchen, the carpets, and even the patio gets included in capital works depreciation.

 

The plant and equipment category is comprised of items that can easily be moved out of the home or commercial premises. Whitegoods, furniture, electricals, and even rubbish bins are included. This is the category that some investors have trouble with because they don’t know they can even claim rubbish bins as an instant write-off.

 

The depreciation calculations, though, rarely get done by the investor who owns the property; this is a job for a quantity surveyor. After the property settlement, the new owners must get a surveyor in as soon as possible so they can make an accurate assessment. They’re the ones who write up the depreciation schedule. They calculate the value of the items in the home and how they’ll decline in value over time. Depreciation schedules last forty years, starting from the settlement date.

 

Investors don’t have to worry about working the depreciation schedule into their tax return, either. Once the quantity surveyor has completed their assessment, the investor’s accountant can handle the rest. They use the schedule as a guide to assist in making an accurate return. They’ll do their best to make sure their client pays as little tax, and gets the best refund, possible.

 

Business owners without a depreciation schedule are missing out hundreds of thousands of dollars over the time they own a property. Contractors like Deppro come to assess what their clients can claim, and work hard to ensure they get the maximum amount back.

Avoid emotional fallout when investing in property with these tips

There’s never one, simple reason for investing in property. Buyers might want to add to an existing  portfolio, start a renovation project, or have a home to rent out for holidays. Humans are only, well, human and emotions sometimes run high when it comes to property.

 

Avoiding emotions is difficult; you can’t shut them off completely. When you get something you want it’s natural to feel happiness, even elation. But the opposite is sadness and downright devastation. First-time investors and buyers are most susceptible to this because they lack experience in the area. The emotional burnout of hunting for properties and attempting to invest, only to get rejected, is severe.

 

Seasoned investors have gone through the initial roller-coaster of emotion and know that they’re investing in property for their potential tenants, not themselves. Investors have the experience to analyse properties with a near ‘clinical’ eye. They categorise the positives and the negatives of the home, whether it fits the profile of their ideal tenant, and if it will generate any income.

 

One way to deal with the emotions, and all the highs and lows that come with them, is developing  a business mindset. Take the personal bias out of the equation and ask yourself: “what would an investor do?” Don’t go about investing in property because you hope to move into it  one day or it fits the mould of your dream house. Your tastes, great as they are, don’t suit everyone.

 

Another way is to get the professionals on your side. The buyers agents and property specialists at your bank are unbiased and will honestly say if a particular home is a smart buy. When you’re looking at property for investment, you want to buy a place that generates income. It’s not pleasant when a depreciation specialist comes back with a report saying you basically purchased a money pit.

 

Emotions are fine, but emotional fall out is not. Avoid making irrational decisions by changing your mindset and getting the professionals on your side.