One of the most popular trends in the real estate world recently is co-ownership. A rising number of property investors are choosing to own properties together, and there are some great reasons behind it. Co-ownerships of properties are increasing the purchasing power, which is particularly significant in large cities. Co-ownership also relieves the burden of maintaining a property. The cost of repair and maintenance could be carried by multiple parties instead of one person.
But beyond all of this, co-ownership can also assist in claiming depreciation on property, giving a chance to depreciate more assets at a higher rate. Let’s understand how this works.
What is a split report?
A split report, as the name suggests, splits the value of the assets in proportion to each co-owner’s interest. We calculate depreciation on rental property or private property only after the split. Thus, a split report allows for tax depreciation based on the interest of each co-owner, instead of an aggregate depreciation.
The rationale behind the idea is quite clear. As we know, tax depreciation is a process where the depreciation in the cost of assets within a property is considered as another expense, thus allowing for larger tax returns. When a split report comes into the picture, the distribution of assets too is made according to the percentage of ownership of each co-owner. This increases the number of assets eligible for a write-off or a low-value pool.
The whole tactic accelerates the depreciation benefits for the co-owners, making it a very profitable technique in the early years of property ownership.
Scenarios where split report works
A split report is applicable wherever there is a scope of claiming tax depreciation on the assets of your property. Let’s try to understand how multiple owners are better than a single one.
Consider a scenario where property investors are allowed to receive a write-off on assets that have a starting value of $300 (or less). Typically, this severely restricts the write-off a single owner could get on a property. However, in the case of co-ownership with an equal partnership, each owner is allowed to claim a write-off on items with a value of less than $300. This means that the co-owners can collectively claim ownership of $600 value.
A similar tactic could be employed in case of low-value pooling. Suppose that if the interest of the owner for any asset is less than $1000 in value, the asset would be considered low-value. The owner gets a Deppro contact number and gets told that he could claim them at a rate of 18.75 percent in the first year and 37.5 percent from second year. However, when there is a 50:50 co-ownership, each owner is allowed to claim assets with interest less than $1000, thus allowing to put a total claim worth $2000.
Asset depreciation is a significant tax deduction for property owners, something to consider during a Deppro review. However, this is far from the only benefit that co-ownership offers. If you are looking to invest in a property, doing so with others can hold some long-term benefits for you. Contact us today to chat about your options.