Depreciation in real estate is one of the most common and crucial tools for rental property owners. This gives way to deduct down the costs included in buying and property improvement measures. This, in total, tends to turn quite useful in life, lowering down the taxable income of the individual in the concerning process. Property investment returns are the biggest concern of individual’s planning an investment in the real estate sector.
However, tax deductions are highly dependent on the depreciation deductions concerning any property. Investor owners willing to invest in real estate units and apartments often tend to fear the great depreciation deductions associated, herein.
Key Features Concerning Depreciation Deduction
- Depreciation is used by property owners for deduction of the costs involved in buying and improvement of the property.
- As soon as the units or apartments are put in service, depreciation begins.
- Most of the units or apartments start depreciating at a particular rate over the concerned period of time.
- However, it is very important to understand the fact that the depreciation only concerns the building value and not the land.
Investing in Apartments in Australia
Most of the Australian investors choose apartments and unit developments options as the prime part of their planned property portfolio.
The main reason behind the same is both, the probable estimate tax returns and less investment.
However, some of the major reasons for the same can be listed as follows:
- Lesser purchase cost
- Lesser maintenance on an ongoing state
- Favourable return in terms of rental yield
- Very attractive for the tenants as it accords favourable affordability, lesser maintenance, and nearby central locations.
Apartments and Units and Their Depreciation Deductions
- Similar to all other properties, there is quite a substantial tax deduction that is claimed in the case of apartments and units. Especially, in the case of new and recently built property units, this holds strong.
- Based on the years of establishment, the depreciation schedules of the property might vary for owners all across Australia.
- In order to get the well worth tax claims, the depreciation value needs to be kept in might as per the brand new or second-hand belonging.
How is Depreciation Deduction Calculated?
Depreciation deductions are primarily calculated on their respective rental property in the following two forms:
- i) Over the already constructed works: This includes the overall building subject to walls, doors, ceiling, windows, etc.
- ii) Over the inclusive assets/fixtures and fittings in the house: This includes geyser system, air-conditioning, cooktop, etc.
Apartment owners have the right to claim their entitlement over the common areas of their apartment/unit development. This makes them eligible for claiming over the construction cost and shared assets’ cost.
This means one can claim deductions over the depreciation of their share over the inbuilt facilities of the property. Driveways, basements, carparks, landscaping, pools, gyms, etc are some examples.
However, in case of purchase of a second hand holding after May 2017, the owner isn’t liable towards claiming any annual depreciation.
On the contrary, they own the right of claiming the annual depreciation while selling the property even for a purchased second-hand apartment, bought after May 2017.
Boosts Deductions in Terms of Apartments/Units
· Higher the construction cost of the apartments/units, higher the deductions
- One of the prime facts about the multi-level aspect of an apartment/unit is that the construction cost per square metre is generally higher as compared to any other standard residential house.
- With the depreciation of the constructed works being in complete tune with the construction cost, higher construction cost always tends to offer higher deductions for the correlated depreciation, every year.