A Beginners Guide to Rental Property Depreciation: All you should know!

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In order to minimize your tax liability, claiming the depreciation on a rental property is imperative. It also significantly improves your cash flow. It is important to calculate precisely on the amount of depreciation tax deduction on rental property. While a little depreciation will enhance your tax liability, any excessive claim can cover you under the preview of ‘Fraud’.

Here is a comprehensive beginner’s guide to rental Property depreciation:

Depreciation – an Overview:

Depreciation technically refers to the decrease in the value of an asset over a period of time. Any tangible asset has a value which declines substantially over its useful life. The owner of the assets can deduct the cost of these tangible assets as an expense to claim the tax deduction.

Depreciation is a non-cash transaction which helps in improving the cash flows by the way of reducing the tax liability. Any rental property generates a certain amount of income which is liable to tax. By claiming the depreciation tax deduction on rental property, this liability can be reduced.

For investment property depreciation, there are two broad asset classifications:

  • Plant & Equipment: Any item used in a building including dishwashers, light fittings, curtains, carpets etc. But the garden plants are not covered in this category.
  • Building: The cost involved in the construction of the building for concrete or brickwork.

ATO Tax Depreciation Schedule – An Overview:

A Depreciation report needs to be maintained in order to claim a depreciation tax deduction on rental property. Tax depreciation reports state the entire claimable amount under depreciation to be considered for tax purposes. ATO only allows for a backdate depreciation of up to 2 years.

Hence, it is recommended to start claiming depreciation at the earliest possible time. It is worth noting that this 2-year limit can be contented by a savvy accountant and on the discretion of an ATO commissioner.

To include the rental depreciation:

  • Rental money must be included under the income.
  • Any insurance payout on the rental property must also be included under the rental income
  • Any booking or letting fee should also be considered as rental income.
  • Any reimbursement received for deductible expenditure to be included under the rental income.
  • In the case of co-tenants, depreciation can be claimed only to the extent of legal interest in the property.

Things to Know About Depreciation Tax Deduction on Rental Property:

In order to claim a correct depreciation tax deduction, you must know the following details:

Date of the Beginning of Construction:

When the construction of the property begins, the depreciation rate percentages can be counted from the effect. If the property is constructed in different time frames, the depreciation can be claimed according to different times.

The percentage of depreciation approves the time for which depreciation can be claimed. Say, if you are claiming a depreciation of 5%, you can claim it for the subsequent 20 years. Similarly, if you claim depreciation for 4%, you can claim it for 25 years.

Date of the End of Construction:

The depreciation tax deduction on rental property can be claimed after considering the date of the end of depreciation. This is a very important date to be known and considered for the depreciation deduction.

Cost of Construction Involved:

The actual cost of construction exclusive of the cost of property purchased as well as the value of the property is considered as the cost of construction liable for a rental property tax deduction. It can also be estimated, in case the owner is not sure about such cost. Such estimation can be done on the basis of the type of construction say residential house or apartment or any commercial property as well as the party involved in such construction i.e. owner, builder or any developer.

With this beginners guide to rental property depreciation, you can suitably save a considerable amount on your tax liability.

Tax Deductions You Didn’t Know You Could Claim From the ATO

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It is said that death and taxes are inevitable. One never knows when, where, or how death can strike. But you do know that taxes come back to haunt you at least once every year. One thing that you mustn’t do is evade taxes. But what if you could reduce the tax liability without breaking any rules. The Australian Tax Office (ATO) has detailed rules about tax deductions. While most big-ticket options for tax reduction are well documented, there are many useful rules which not everyone knows about.

Let us look at two such tax refund options which you might not have heard about – one on work-related expenses, and the other on the depreciation of your property.

1. Work-Related Tax Deductions:

Let us first look at the ways your work-related expenses could help you lower your tax. In case you have taken up a course of study which pertains to your current employment, all expenses on it beyond the first $250 can be claimed as deductions. In case you can show that you are doing your office work from home, then the expenses incurred for that can be claimed. Some common examples are stationery, printers, computers, electricity expenses, and even chairs and desks. For some specific jobs, footwear expenses which are specific to their job can also be claimed. If you have subscribed to any magazines or journals related to your line of work, even that can be claimed under tax deductions.

Some of the items on the list above must have surprised you, but we are not done yet. You can claim a total deduction of up to $300 without submitting any proofs, but beyond that, you need to submit evidence. So let us look at some other work-related expenses where you can show receipts and reduce your tax. What about the work clothes you wear? Well, you can claim up to $1 per washing and ironing, provided you can show receipts. If you are paying your mobile phone and internet connectivity bills and have receipts to show, you can add them on if you are using them exclusively for work. The maintenance expenses of the vehicle you use to travel to and from work can also be claimed. The maximum distance allowable is 5000 kms, which means an average travel of 25 kms per day is admissible if you go to the office around 200 days in a year.

2. Property Related Allowances:

When you use a reputable agency like Deppro, they will tell you the small and of course the big expenses you can claim. In terms of assets, the bricks and mortars used in your property can also help you reduce your tax liability. You must remember that the land on which your house is constructed is not considered to be a depreciable asset, so you can’t claim tax depreciation on its value.

The ATO has recently changed its rules regarding claiming of tax depreciation. You need to hire a trustworthy agency who can send a qualified quantity surveyor to your property. The surveyor can make a list of all the assets and accordingly create a property asset list, based on which you can file your tax depreciation returns.

How a Property Report Can Help You Sell Your Home

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Whether you own a car or have installed machinery in your factory, the value reduces every year. This is an economic principle that is applied. It assumes that usage and natural wear and tear will reduce its worth every year. The same holds true for real estate. Your property, whether new or existing, also attracts depreciation on both capital (fixed) works and plant & equipment (removable). A property report lists down the depreciable assets that become applicable every year.

What Is a Depreciation Schedule?

The property depreciation that becomes applicable each year is also eligible for tax allowances of which you can claim. But for that, the property owner needs to know the depreciation amounts each year. Tax depreciation schedules are extremely important as they assist in understanding the correct amount and claim tax benefits accordingly.

Would Depreciation Help Me Save Money?

Let’s say you are not staying in your own property but have rented it out. If you refer to your rental property depreciation report, you can claim accurate tax deductions. This would help to improve your cash flow, and you could use these savings for maintenance expenses on your property. Each of these depreciations would be listed in your property report.

Basic Principles of Calculating Depreciation for a Property Report

If you were to prepare your own depreciation residential rental property report, you would need to know specific calculations. The first is the Prime Cost of your property. If your property is expected to last 20 years, its prime cost depreciation would be 5%. The second calculation is of an asset’s Diminishing Value. This assumes that the wear and tear is greater in the initial years. However, a depreciation report can be quite tricky and touchy, therefore, it is best to rely on professionals who know exactly what they’re doing.

Final Thoughts:

Getting the correct property report would help you claim tax accurately. It would also help you sell it at the right price when needed. It is best to utilise the services of professionals to get an accurate report and get the most out of your report.

Depreciation for Residential Rental Property

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More than a year ago, the rules for calculating the rates of depreciation for residential rental property were changed. Only the additional fittings for plant and equipment that are made by the buyer after purchase would attract tax benefits due to depreciation. However, those that were there before purchase would not. Plant and machinery refer to additional fixtures and fittings like curtains, room heating, air conditioning and the like.

How to Comply With ATO Regulations:

The rules governing depreciation for residential rental property are laid down by the Australian Tax Office (ATO) and they change on a regular basis. Whenever a property owner files a tax return, he must ensure that the return has calculations of depreciation on investment property ATO. For this to happen, a complete inventory must be made of all the assets on the property. The list must highlight both capital goods and plant and machinery because both would attract different rates of depreciation. ATO compliance mandates that a registered quantity surveyor is employed to prepare the investment property depreciation schedule ATO.

Calculate Depreciation for Residential Rental Property with the Help of a Consultant:

All of the above requirements can be easily met if your property depreciation reports are prepared by property depreciation consultants. They are well accustomed with the latest ATO guidelines, and these consultants are also aware of the right format in which the property report is to be prepared. This ensures that you do not miss out on any of the tax breaks you are eligible for. You would also devote your time to other important work, leaving all your tax worries to the consultant.

The job of calculating depreciation for residential rental property is not an easy one if you wish to remain ATO compliant. An experienced consultant can make this job easier for you and ensure that it is error free.

Investment Property Calculator – Learn About High Return Investments

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Investors buy a property for two separate benefits. First, they can rent their property out which ensures regular, steady cash flow. Additionally, they would calculate depreciation over an extended period. This would be done with the help of an investment property calculator. This calculator takes into account the annual depreciation while filing Australian tax returns. But in order to get the best benefits, the calculator must be accurately constructed. The depreciation impacts must be correctly calculated.

Who can Benefit from the Investment Property Calculator?

If you are an investor yourself, now you already know how you can benefit. But, for examples, if you are a real estate professional, you too can pass on the benefits of tax depreciation to your clients. This will help you gain a sense of trust from your clients, which might even lead to repeat business and referrals. But what if you are a regular tax consultant with no relation to real estate? You might still have clients who invest in property. You could use a good investment property calculator. This would help you to do the calculations accurately.

Who Can Help You?

Whether you are a property investor, a tax consultant or a real estate professional, you can be assisted by employing a dependable firm to help you calculate tax depreciation. If you are looking for someone with expertise in Australian property rules, Deppro can help. Deppro will provide you with the services of registered quantity surveyors, who can help create accurate property reports.

Wrapping Up:

With the complexity in tax rules and the frequent updating of regulations, you need expert help. Expert help will ensure that you do not fall foul of the law. You can also get the maximum benefits by submitting the perfect investment property schedule.

Tax Deductions – Tips for Individual Real Estate Investors

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Planning to invest in the real estate sector? Looking for tips that can help you in tax deductions? Mentioned below are a few tips for Individual Real Estate Investors:

Property Taxes and Insurance:

Any expenses incurred on rentals of Property taxes and insurance are termed as deductions. In the event that you purchased your rental with traditional financing, you are most likely making property regulatory expenses and protection costs on a month to month premise into an escrow account. It’s imperative to acknowledge that the installments into escrow accounts are not really deductible. Rather, you can just deduct property assessments and protection when paid out of escrow. Have a look at the federal tax depreciation schedule for some more tax deduction tips.

Property Depreciation and Tax Deduction:

Devaluation is a yearly conclusion that is conceded to venture land proprietors or proprietors of equipment utilized for business purposes. You may be confused as to why your property deteriorates when in reality the land value increases. While the facts demonstrate that the estimation of the land and the building has verifiably appreciated over time but, you got to think from a micro level as well.

The estimation of your rooftop, for example, diminishes after some time as it decays each passing day. Deterioration tracks the value loss every year. The interesting thing about devaluation is that you don’t need to pay out-of-stash for it every year. Rather, you pay for everything forthright when you purchase the property. Thus, it helps in tax deductions.

Repairs:

Firstly, you will get the full Property depreciation and tax deduction (reserve funds) from the findings in the present year.

Secondly, since the cost is a repair, the cost isn’t a change and deteriorates over various years.

You can save on tax deductions on amortizations, maintenance, education, meals, travel, and home office.

Top 5 Tax Depreciation Tips You Need to Know

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No one loves paying their taxes. That’s why you shouldn’t let go of an opportunity to legally reduce your tax. The guidelines regarding property tax depreciation allow you to do exactly that. If you go through the provisions of ATO property depreciation you will understand exactly how you can reduce your tax burden, but in this article, you can read that in very simple terms of 5 easy steps.

1. Understanding Your Assets

You need to demarcate each and every asset on your rental or investment property into the two broad categories of capital works and plant and equipment.

2. Getting an Expert Opinion

If you are not sure about how the distinction is to be made, you can get a dependable company like deppro to review your property and list down all the assets correctly. This is done by one of their certified, professional quantity surveyors.

3. Preparing Property Tax Depreciation Schedule

Based on the property review done completed by a qualified quantity surveyor, a complete property tax depreciation schedule would be prepared to detail the exact amounts of depreciation each element of your property is subject to. The company whom you have employed would prepare the correct details of each year’s depreciation.

4. Completing Your Tax Return

Once your depreciation schedule is ready, you need to go through the ATO regulations to understand what tax allowance each depreciation amount attracts. Based on that, your tax return will need to be reworked and the additional allowances factored in.

5. Check Your Refunds

If you pay advance tax, then the tax deductions your depreciation will allow you, will be granted to you as a refund. Make sure that this refund is exactly the same as the calculations you had calculated earlier.

Tips to Get More Out Of Your Depreciation Claim

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It’s everyone’s dream to own their very own property. It not only makes you feel good, but it brings rental or investment income too. But like everything, the value of a property decreases over time. This has nothing to do with the market value or the cost of raw materials. It is an economic principle called depreciation. Every year the components that make up your property become less valuable. Australian tax laws lay down a process for claiming depreciation on a rental property. This ensures that you are entitled to tax deductions. The extent of those deductions depends on the amount of depreciation.

Steps Involved in Claiming Depreciation on a Rental Property

The first thing to do is to assess the property. Every single asset on the property needs to be properly evaluated. You can use the Deppro contact number to get in touch with a reputable company for your depreciation claims. They will divide your assets into the correct categories and then they will allocate the correct depreciation rates as per ATO rules. Based on this, your depreciation schedule will be prepared, thus, the correct tax return can be filed.

The Correct Tax Returns

You might have often wondered can you claim depreciation on a rental property? The answer is yes. Depreciation can be claimed during filing tax returns. The process for claiming depreciation on a rental property is quite simple. But it might become tedious if you do it yourself. A good company with good quantity surveyors can make the process much easier. A team of expert quantity surveyors can make the task of claiming depreciation on a rental property extremely simple.

investing in property

Self-care strategies for the property investor

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Burnout isn’t fun. It’s a result of investing in everything except yourself. As a property investor, you must be on the top of your game if you want to grow your portfolio and increase chances of financial freedom. Not all of these tips are based on financial success. They’re about investing in yourself and your worth.

Stop comparing

The property investor community is full of people boasting about their annual return, how they got a discount on their capital gains tax, adding a family home (not an apartment) to their portfolio, etc.

No two investors are the same, so stop comparing yourself to that person in your head right now. Their strategy works for them and your strategy works for you. A self-described guru might be up until early hours looking at deals. You prefer 8 hours of solid shut-eye and check your emails for alerts the next morning. And that’s okay.

Talk to a professional

Asking for help isn’t a sign of weakness. Confronting problems head-on and admitting what they are is strength itself. People don’t know who to turn to sometimes, especially when it comes to their ‘failures’. Go to your GP for a referral to a psychologist and book an appointment. Mental health is just as vital as physical well-being. That brings us to the next point.

Take a day

Is your property investor role more of a side hustle? A majority of people in the game work full or part-time jobs and devote a small amount of time to the real estate market. Juggling two roles will lead to burnout and that’s why it’s important to take a day off. Don’t be a hero, it’ll result in a meltdown.

Do things that make you smile

You enjoy being a real estate aficionado but it’s a business, not a hobby. What would you say you don’t have time for anymore? Take an hour, half an hour, out of your day and do something that fills up your soul. Exercise, art, reading, swimming, baking are some suggestions to get you started.

Distance yourself emotionally

Emotionally investing in real estate is a recipe for disaster. That’s stress you don’t need in your life on top of work and family.

Detachment and being brutal in your choices will feel uncomfortable at first. But those tenants who keep disrespecting your investment home, for example, aren’t your family. The property manager dragging their feet and not returning your calls isn’t your best friend. Evict, cut the cord, and look for what serves you better. You’re a property investor, a businessperson. And people in business are successful because they make uncomfortable choices.

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Read this to improve the cash flow from your rental property

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Your rental property won’t earn you income straight away, but there’s ways  to get to that  point a bit faster.

Depreciate

80% of property investors are unaware of the tax benefits they can claim through depreciation. Imagine getting back thousands of dollars every year, on top of your (still meagre) rental income. The value of what you purchased this year won’t have the same value ten years from now.

Book an inspection as soon as you settle the property. The quantity surveyor will write up the report and send it back to you a month after their inspection. Get it to your accountant as soon as possible after that so it’s on hand in time for your annual return.

Increase the rent

As the area’s profile grows, so will demand and rental prices. It’s not unreasonable to change the rent a little. 2 – 3% is enough annually. Link it with new amenities like appliances or a paint job to show the tenants that it’s worth the increase.

Charge for amenities

‘Little luxuries’ can also boost the cash flow for your rental property. Cleaning services, internet connection/wifi, gardening, Foxtel and the like are all extras that can earn you a couple of extra hundred dollars.

Charge for the parking space

Same as renting out the apartment, rent out space in the parking garage (if your property is part of a complex). Inner-city parking is especially coveted. If there’s no parking on-site, look a one of the links below to investigate the possibilities of leasing a space.

Find A Carpark

Parkhound

Listen to what tenants WANT

Tenants are picky and they’ll choose properties that suit their needs. They’re busy people with kids, pets, and full-time jobs. Their home should be a place to relax and let the dog off the leash. Here’s some of the items on their list;

  • Location: tenants want a rental property close to work, school and the shops. Public transport right on the doorstep and lifestyle in the neighbourhood is a plus.
  • Housekeeping: A dishwasher, laundry area with at least a washing machine and a fully equipped kitchen is a big one. Bonus points if the appliances in the rental property are stainless steel!
  • Nature: Natural light, balconies, and yard areas for pets are also on the list. You might be hesitant to lease to tenants with pets, but more and more people are adding furry friends to their family.

The list goes on, but upgrading the appliances and raising the rent to cover the garden/maintenance fees is a place to start!

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Yield the most from your property portfolio

Read this before using your investment property as an Airbnb