How Is Depreciation Applied Following Natural Disasters?

Annually, people lose millions and millions on their properties owing to unforeseen natural calamities. These unforeseen disasters hit them like a wave leaving nothing but ruins. Natural disasters especially affect realtors and property investors. These participants of the property market more often than not, find themselves in heavy debts and losses.

Such stressful situations call for replacement of assets as well as rebuilding and refurbishing all their entire property.

The brunt of this challenging process has to borne by both the property owner as well as the tenant. However, the final improvement brought upon the property makes it for a better asset. And thus invites a rather increased depreciation deduction tax. This tax depreciation must be studied properly.

How to Maximise As Well As Maintain the Compliance?

The following table will indicate exactly how you can optimise your compliance for depreciation deduction levied on your disaster-ridden property. And hence give you a better insight into depreciation tax benefit.

Asset Properties Covered in Insurance Properties NOT Covered in Insurance
Replaced Will need to make alterations in the Tax Depreciation Report Scraping of the residual value of the replaced asset + calculating depreciation for the new asset.
Repaired Instant deduction of the expenses for repairing + declare any arising income from insurance Instant deduction of the expenses for repairing
Upgraded Will need to make alterations in the Tax Depreciation Report Scraping of the residual value of the replaced asset + calculating depreciation for new asset.

The Jargon of the Table

  • Repaired: It refers to the minor tweaks here and there in the pre-existing asset to restore it. It doesn’t mean improving upon its appearance but only the functionality.
  • Replaced: This refers to procuring a replacement for the pre-existing asset which mimics its exact functionality and usage. In short, a new asset of the same model in place of the original mode.
  • Improved or Upgraded: This refers to the replacement of the damaged asset or machinery. However, here the new model so procured is an improvement or upgrade to the existing asset. Which means a better functioning and more specifications.

The Process

The entire property of availing deppro benefits can seem a little daunting but here’s how it goes down:

In case the quantity surveyor has initially assessed the entire property which is being claimed for then it gets easy. As now it only requires adding alterations to the previous report which can happen at a minimum cost.

But, in case the prior assessment of the property in question didn’t take place, then it gets more cumbersome. As now you need a full inspection followed by creating a report.

This should be noted that the time of the entire procedure is crucial and thus it should be attended as soon as possible. We suggest you to approach our experts with individual situations or crises. This will ensure that all your previous, current as well as future claims are optimised. They will also ensure that if your claims are in compliance with the ATO guidelines or not.

Wrapping-Up:

Disasters don’t come announced, they can hit you anytime, anywhere without notice or warning. Such situations can have repercussions. So it’s best that you’re prepared with all the ins and outs of knowing your depreciation for property.

Our website is specifically curated to deal with such mishaps. Hence, if you’re facing something similar or you may want to be prepped for the future, then contact us. We will tell you all there is to know about the procedure for claiming depreciation on the property as well as its implications.

So what are you waiting for? Contact us today!

Repairs, Maintenance Vs Capital Improvements

Before delving too heavily into this, first, you need to understand the basic meaning of repairs and improvements. So, what can be considered as a repair and what can be considered as an improvement? Improvements can add value to your property, making it more beneficial and fruitful for you in the long run. Basically, it will increase your profit at the end of the year. While repairs are needed to maintain the health of any asset or property, it will keep the asset in good and working condition for a short span of time. We would recommend discussing tax depreciation schedules with a professional and qualified accountant for this purpose.

Understanding Improvements:

The improvements may include:

  • adding assets or anything that adds value to your present property
  • upgrading to a new technology
  • adapting something to a new trend or technique
  • restoration of some aspect of a property

There can be some examples of improvements like installing a security system, an air conditioner, a heater, renovating your kitchen, replacing tiles, replacing the entire roof and much more. Improvements always add to the profit, therefore, you cannot deduct the cost of improvements in the current year. You have to keep track of the expenses and plan a tax depreciation schedule so that at the time of selling your property, you can get tax benefits from it.

For example, if your property’s current value is $200,000 and 20 years later you want to sell it for $400,000, but you have made improvements costing $50,000 then you need not pay tax on $200,000, rather you will pay tax on the amount $150,000.

Understanding Repairs:

Repairs are done in order to keep things moving and keep them in a healthy state. They are not meant to add value to your property, but they will bring the asset back to its original condition. They can only add short-term value to your assets. There is tax depreciation on repairs and maintenance that you do on your assets. Depreciation basically involves all the costs and expenses incurred to keep a property in a well-managed condition. Every expense can be related as a property depreciation tax deduction.

Some examples of repairs include:

  • repairing window glass
  • cleaning air ducts and vents
  • replacing electrodes in water heaters
  • replacing sewer pipes

Repairs can be deducted in the current year as they only aid in keeping your asset in operating condition, not causing longevity or prolong the useful life of the property. An example of a repair would be changing the oil in your bike. This will keep your bike in good condition, however not necessarily increase its life.

You are expected to perform repairs more than twice in a period of 10 years to maintain a working condition of your asset. These tax deductions are possible only when you are not using the property as your personal residence. You can file repair expenses only when you are using the property in your business or you are renting it. You can get more information and depreciation reports for your investments on Deppro.