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.
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.