A Property blog by Paul Bennion.
Record low interest rates and rising property prices are now encouraging more property owners throughout Australia to undertake home renovations.
This is underlined by the latest ABS figures which show that last financial year Australian’s spent a record $6.6 billion on home renovations.
Spending On Home Renovations*
2012/13 $5.79 billion
2013/14 $6.08 billion
2014/14 $6.64 billion
There figures also reveal that spending on home renovation over the past two years has surged on an annual basis by more than $800 million.
A large proportion of the jump in home renovation expenditure can be attributed to property owners deciding to renovate because of rising equity in their homes especially in areas such as Sydney, Melbourne, Brisbane an the Gold Coast.
However, investors are also taking advantage of the rising property market to buy homes for renovation purposes.
Overall, our company has recorded a 25% jump in the number of tax depreciation reports we have undertaken during the last year for investors planning to undertake major home renovations.
Astute investors are targeting homes in prime locations where they can significantly boost rental returns through renovations.
However, DEPPRO is finding that many investors do not understand that they can qualify for significant /tax-depreciation/tax-depreciation-explained/tax benefits when undertaking a home renovation on their investment property.
DEPPRO is finding that common refurbishments to these investment properties include renovations to kitchens and bathrooms, which account for around 60% of the budget, with the remaining 40% being spent on lounge, family and bedrooms which would include floor coverings and repainting.
Many investors throw out many items without understanding that they may claim tax benefits on these materials at 100% of its written down value in the
year of disposal.
A typical amount spent on a home renovation ranges from $20,000 to $50,000 for a basic refurbishment and the investor can qualify for both plant and capital works allowance as a tax deduction and the residual write off of the disposed item.
However, to qualify for these tax benefits, the investors have to undertake a depreciation schedule for the property as near as to the date of purchase as possible.
A typical mistake is for investors to undertake the renovation shortly after they bought the property without first undertaking a tax depreciation schedule.
That means that many of the items they throw out such as old carpets cannot be claimed for tax depreciation purposes because they have not been recorded in a tax depreciation schedule which can be used for tax purposes as an effective snapshot of the property after it is first purchased.