Tax Depreciation for Investment Properties

Most investors are aware that their property’s value will only decrease over time. But many investors are not aware of the benefits of this depreciation on investment property. Depreciation can help an investor claim tax benefits. The loss due to depreciation would be partly offset by the tax allowances claimed. A typical rental or investment property would have several components. Some would be fixed and part of the property. Some would be attached or constructed additionally. A property depreciation schedule would enable the right tax breaks to be computed. Let us see how an owner can take the help of companies like Deppro Perth to do this.

The Need for an Accurate Schedule

Different depreciation rates apply to different components of a property. As per Australian tax rules, each type of attracts different tax allowances – a property owner might not have complete knowledge of this. It is also time-consuming and tedious. That is why property owners often entrust the job to competent agencies. This ensures that the tax breaks are accurately claimed.

Calculation of Depreciation on Investment Property

A good agency would have competent Deppro quantity surveyors. These surveyors assess every small and big asset included on the property. This is done in strict accordance with ATO guidelines. The rules laid down by ATO often undergo revisions: Deppro quantity surveyors are always completely up to date with such changes. Therefore, you are guaranteed an accurate calculation of your depreciation with Deppro surveyers. Once depreciation is accurately calculated, the right tax deductions can be claimed.

Investors can easily claim the benefits of depreciation on investment property; these benefits accrue through allowable tax deductions. A well-trained and knowledgeable quantity surveyor from a reputable company can help claim the maximum tax benefits. This also ensures that tax benefits allowed by law are not missed.

How Real Estate Investors Can Benefit From a Property Depreciation Schedule

Real estate is a great investment avenue. But property investors have to deal with depreciation. Every year the value of their property reduces. This is called depreciation. The rate of depreciation that each component of your property is eligible for is different. It depends on the ATO (Australian Tax Office) regulations. The Australian tax depreciation rules clearly specify the different rates. Accordingly, the tax deductions can be calculated and claimed. But for that, a complete schedule of depreciation calculations for every year needs to be created. That is called a depreciation schedule.

Process for Creating Depreciation Schedule

The first step of the process, is to get in touch with a dependable agency. This will help you save both time and effort. They will send you a qualified quantity surveyor of which will list down every single asset on your property. Then those assets are categorized as per the ATO rules. The depreciation schedule is then created with such details. A reputable agency will make the process of claiming depreciation on investment property very easy and convenient.

The Tax Benefits

Once the depreciation schedule is ready, it provides the corresponding tax breaks that are permitted by law. If the schedule has been correctly made, then the tax return will also be accurate. Therefore, there is no chance of double tax getting paid for the same item. Not to mention, you would not miss out on any taxable items. But most importantly, no eligible tax deduction option would get left out. Therefore, you can be assured that the lowest possible tax is paid.

A properly-made depreciation schedule is very important for investors. Otherwise, they can end up losing a part of their profits needlessly. Investors should have an accurate view of the tax savings they are eligible for, and such a schedule can help them.

Do You Need to Make Estimated Tax Payments?

You might be planning to pay advance tax or it might be time for the last tax submission date. Whatever your situation, it is always useful to estimate tax returns in advance, to ensure you plan your finances carefully. Tax returns can have several aspects, depending on your profession and your source of income. So keeping some time in hand is a good idea. Not to mention, you may be eligible for tax refunds from earlier years, so you should take that into account in your tax estimate as well.

Impact of Property on Tax Returns

If you are the owner of a rental or investment property, it will impact your tax liabilities. Every property attracts depreciation as per ATO rules. However, there is an upside, as property depreciation makes you eligible for tax allowances. This reduces your tax when you file your tax return Australia. But to ensure you get this reduce in tax, it is crucial your depreciation schedule has been made properly. This helps calculate the correct tax breaks you are eligible for. However, the current applicable laws must be considered when making the schedule. This will ensure that the property owner doesn’t pay double tax and assist with claiming the maximum deductions possible.

How to Estimate Tax Returns with Correct Depreciation

To estimate Tax Returns with the accurate depreciation, a property and all of its assets must be correctly assessed. This is where a reputable company like Deppro Victoria can help. They have qualified expert quantity surveyors on their rolls; they can help you to make the most accurate property depreciation schedule. Firstly, the surveyors make several field visits to take accurate measurements. This is then used to quantify each asset’s depreciation for each year.

When you wish to estimate tax returns, you need to take depreciation and refunds into account. Reputable companies with skilled staff can help you do these calculations. Instead of wasting your own valuable time, these companies do it all for you!

Live/work space; a niche going through a revival

Business owners living above their shops is nothing new. From Europe to Asia, the likes of butchers, leather goods workers, and produce sellers have lived in apartments above their businesses. Australia is catching on (again), and work/live/play spaces are once again on the rise.

 

Why so slow on the uptake?

Zoning is the major issue. One roadblock that stops business owners from living above their workspace is that their business property is in a commercial zone, not a residential one.

In Australia, there are four major zones: commercial, residential, industrial, and agricultural. There are subzones within each category. The live/work way of life was a lot simpler before zoning laws came into the mix. But it can be done, as seen in the example below.

 

Habitat

Byron Bay is known for its creative spirit. It’s the home of artists, designers, chefs, and those who have turned their craft into a living. Rather than commute to work, Habitat offers established businesses and start-ups the opportunity to live and work within walking distance. In this case, right downstairs.

Developer Brendan Saul saw the gap for an affordable, sustainable live and work space. Habitat was inundated with enquiries and officially opened its doors in late 2017 and hosts the likes of florists, clothing retailers, cafes, restaurants, and gyms. It opened a communal workspace in 2018.

It is possible

Governments have also gotten on the live/work trend, providing affordable living spaces for creatives and entrepreneurs wanting to take risks.

When you decide to take the plunge and invest in a live/work space, make sure you reach out to a professional. Brokers and real estate agents will have the zoning knowledge and will guide you through the process of building your own space, if you so desire, to lease.

 

Get more advice below:

Ideal tenants for a commercial property

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Commercial property renovation hacks that add value

As an investor, you want to be up-to-date with market trends and find ways to bring in tenants to your commercial properties. If they’ve sat bare for a couple of years, and looking dates, then it’s time to get renovating. We have a couple of hacks so you can focus on the right areas, where you can make the most money off your depreciation schedule.

 

Bathrooms

Not just any type of bathroom with a few toilet stalls and basins; looks definitely matter. Offices, shops and restaurants are becoming fancier with their designs. Even gyms have bathrooms worthy of an interior design featurette.

A gym shower and sauna in the USA

Bathrooms are major selling points for tenants in both residential and commercial property. Natural wood elements and lighting paired with neutral tiles is a common combination that never fails to impress. If you own an office block and have the room, fully equipped bathrooms are an excellent selling point. Workers often hit the gym before they make their way to the office. They’ll need a place to freshen up before the day ‘officially begins’.

 

Kids play area

Employees have families, as do potential visitors. And not everyone can bring in a babysitter or find a daycare. Having am on-site kids play area in a commercial property isn’t that unusual. Shopping centres have done it before, and the trend is slowly spreading to gyms and workplaces.

 

Kitchenette

Definitely a feature that will attract tenants. They need a place to keep their food, make their coffee and take a break from their desks. The kitchen is where you can make money in terms of the plant and equipment items in place there. This includes the dishwasher, espresso machine, microwave, sink and fittings.

Outdoor entertaining

Humans need sunlight and fresh air; what better way to access it at work than an outdoor area? When you’re renovating the property/making an extension, turn the extension into a patio with some hedges, a barbecue and some outdoor furniture. The barbecue and the furniture can be depreciated.

 

TVs

Yes, we are giving you an excuse to go out and buy some big screen televisions. Modern properties have a showreel on their TV screens, usually placed in the foyer and meeting rooms.

 

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Read this to increase the value of your commercial investment property

Residential properties that guarantee an ROI

Depreciation And Real Estate Mistakes That Will Lose You Money

Mistakes are part of life, but you’ll be kicking yourself if they lose you money. Make sure you avoid the ones below.

 

Rent at mates rates

It’s natural to want to help your mates out; it’s what friends do. But there are some situations where mates rates should not apply, and that includes property. The reason investors get into the property market is because they want to make an income. Friends can certainly live in properties you own, but be firm when you say they must pay rent. You’re running a business, not a charity.

Don’t mix business with mates; you can’t be a friend and a land lord

Depreciation DIY

Don’t attempt this unless you’re a quantity surveyor. These people work out costings for building projects and have a high level of education. They’re part of an official body (Australian Institution of Quantity Surveyors) that ensures members are aware of the latest industry standards and participate in the training required to keep up their skillset.

Long story short; unless you have a Bachelor of Urban Development (Honours) (Quantity Surveying and Cost Engineering), leave it to the experts. Book an appointment here to get a qualified surveyor in for a visit.

 

Saying ‘that’s not worth anything’

Just because some of the properties have a few decades on them doesn’t mean they aren’t worthless. Some capital works are still eligible for deductions.

Items that are worth $300 or less are eligible for immediate deduction; think the rubbish bins, smoke alarms, children’s play equipment and the curtains. Other overlooked deductions include spa baths, bathroom and kitchen appliances and even the swimming pool are items that can be claimed on a tax depreciation schedule.

Old doesn’t equal worthess

Putting it in the wrong category

Yes, this is one of the dangers of DIY depreciation. In the schedules that quantity surveyors create, there’s two categories; capital works and plant and equipment. They’re also known as Divisions 43 and 40, respectively.

Capital works include items that are built into the property itself; wiring, driveways, fences and some landscaping. Plant and equipment include things you can easily remove from the property such as furniture and carpeting. If you own a commercial property the desks, blinds and shelves can be claimed. You can find out more about deductions on the ATO website.

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Property Sector Warned About ATO Crackdown On Tax Depreciation Claims

Over recent years, the ATO has paid growing attention to tax returns submitted by tax payers relating to investment properties.

It is therefore highly likely that the Australian Taxation Office will pay particular attention to tax depreciation reports for investment properties when property investors submit their tax return from 1 July.

In particular, they may pay particular attention to tax depreciation reports that are prepared without a physical inspection of the property.

Unfortunately, a growing number of tax deprecation companies are not undertaking physical inspection of properties to cut costs and this failure could result in serious problems for their clients if they are audited.

If you are a property investor and plan to visit your tax accountant regarding your tax return from 1 July, you should raise the issue of tax depreciation and obtaining an ATO compliant tax depreciation schedule for your property or properties.

It is important to raise with your accountant the fact that desktop estimates of potential tax depreciation benefits are not accepted by the ATO and that a physical inspection of the property is required.

Accountants need to protect the interests of their clients by ensuring that the tax deprecation company they recommend to their client, conducts a physical inspection of the property.

The same principle applies to other professionals related to the property sector such as mortgage brokers who refer their clients to a tax deprecation company. Similarly, they should check if the tax deprecation company undertakes a physical inspection of the investment property before making a referral.

This is a simple check but one which could ensure that their client does not have to pay substantial penalty fees imposed by the ATO because the tax deprecation report is not compliant.

Overall, it is still unfortunate fact that a large number of tax payers who own investment properties will collectively miss out on millions of dollars in tax depreciation benefits over the coming weeks simply because they do not correctly claim them through lack of knowledge.

DEPPRO estimates that only one in five residential investors make use of the tax depreciation entitlements which are available to all investors on all investment properties.

Many property investors who have owned their properties for several years and have not undertaken a tax depreciation schedule still have the potential to claim back thousands of dollars in tax depreciation benefits.

A depreciation schedule can be undertaken at any time by a property investor. If you own a property for a number of years, you can still undertake a depreciation schedule and put in an adjusted tax return to enable them to obtain unclaimed tax depreciation benefits.

Most investors do not realize that tax benefits obtained through depreciation can be equivalent to 60% of the total purchase price of the property.

For a new apartment in a capital city, for example, this can equate to over $300,000 in possible tax benefits through depreciation.

You should engage the services of a tax deprecation company who will undertake an inspection of your property and provide you with an ATO compliant tax depreciation report which you can provide to your accountant.

This report is a ‘once off’ and will outline the amount of tax benefits you can claim on an annual basis. Anyone considering employing a tax depreciation company should ensure that they are a member of the Australian Institute of Quantity Surveyors (AIQS).

Obtaining a tax depreciation schedule that is compliant with ATO guidelines is a small investment that can deliver a huge financial return and boost cash flows during a time when rents throughout Australia are under downward pressure.

Want to Get Hired in Real Estate? Here’s What You Can Apply For

You don’t have to be a real estate agent to work in the property sector. Some people don’t like the publicity that comes with it. But there’s other avenues into the industry where you can build and oversee development projects, calculate expenses, or help clients on the legal side of buying their first property.

 

Real estate agent

You’ve seen their smiling faces on billboards, public seats, and on ‘for sale/rent/to lease’ signs outside buildings. These guys are on the front lines of the property industry, selling real estate and putting it up on the market. But don’t think it’s an easy job with a large salary that lets you buy that nice car. Real estate agents do twice as much work behind the scenes. They write reports for clients and the properties they manage, book inspections, and work with a legal team to make sure ownership transfers go smoothly.

Surprisingly, though, you don’t need a bachelor’s degree to work as a real estate agent. The minimum requirement is a Certificate IV in Property Services. Before you start selling, though, a license is required.

 

Quantity surveyor

A quantity surveyor is a person qualified to write a depreciation schedule. These guys will visit your property after you settle to assess the value of the plant and equipment items and capital works. The final report is sent 4 weeks after the visit.

Quantity surveyors also work on building projects. It’s their job to estimate the cost of the materials and provide a report to help with budgets. They’re also known as a construction cost manager. To become a quantity surveyor you must hold a university degree and register with the Australian Institute of Quantity Surveyors.

 

Property manager

This job comes with lots of power and responsibility. As described by SEEK Learning:

As a Property Manager, you will organise and manage the letting of commercial, residential or retail properties on behalf of their owners. You’ll liaise with tenants and owners, organise inspections and maintenance, and follow up unpaid rent.

You don’t need a bachelor’s degree unless you want to move up to higher level roles, like real estate development. The minimum requirement is a certificate in sales and property management, as well as registering with a state body.

 

More myths about real estate investing, busted

Horror stories about the real estate industry are numerous, yes. But this is because some investors and newcomers weren’t aware of the risks and/or have a low tolerance for them. They probably didn’t listen to expert advice, either. We’ll bust some more of the common myths out there, and maybe then your mind will be slightly more at ease.

 

 

  • It’s best to wait until I’m ready

This is a thought based on fear. You will miss more opportunities the longer you wait. That office space or single family home you had your eye on will get snapped up as well.

Waiting is certainly advisable if the conditions for buying aren’t right e.g. it’s not affordable or you can’t get another loan. It’s important though, to be aware if you’re making a logical decision or holding yourself back. When in doubt, speak to your financial planner or a mentor who has more experience in real estate.

 

  • Finding a tenant is going to be easy

Tenants are some of the pickiest people on the planet, and rightfully so. They’re choosing their future home or workspace. You must meet their idea of what they want their living or working space to look like.

You can rely on your realtor to market your property correctly. You can’t rely on ‘open houses’ to bring you a tenant; people might be genuinely interested but most visitors are passing through, picking off what they don’t like before they come across the right fit.

 

  • Young people can’t afford it

Yes, more horror stories. But people in their 20s have just as much buying potential as other investors. It’s a matter of how prepared they are. Sensible investors, new or experienced, listen to expert advice from the people who help them buy the property and manage their portfolio. This includes the financial planner, conveyancer, accountant, mortgage broker, and the property manager. There are also incentives, like government packages, that help first home buyers with their purchase.

Young people are investors, too

 

  • Debt is the worst

Your credit card debt is an example of this. But not all debt is made equal. You will have some amount of debt after purchasing your first piece of real estate but the rental income will slowly fill up the savings account.

Equity is also a way to buy your next property. This is the purchase price of the property minus how much you owe. This is an example of good debt. You can use the equity balance towards another property purchase.

 

Need more reading material? Look below:

Tax Depreciation Changes You Need To Know

Why You Should Focus on Improving Your Investment Property

10 Myths About Real Estate You Need To Stop Believing

Real estate is a tricky business and there’s a lot of articles out there telling you what you should and shouldn’t do. Some of them though, are fake news. Or at least news without the research to back up what they’re saying. Luckily for our customers, we know a few things about real estate and what myths you need to stop believing.

 

  • You can get rich quick

This only happens on reality television and those shows are giving new investors/aspiring renovators the wrong idea. Renovation and auction TV shows are highly publicised and the faces in the crowd are there for window dressing.

In reality, property investment, no matter your strategy, requires patience. If flipping houses is your game, the process is likely to take months instead of weeks. Real estate is about making calculated moves, not doing a rush job and slapping an expensive price tag on what you fixed up.

 

  • Agents are only interested in commission

It only takes a few bad experiences to spoil the reputation of a lot of good real estate agents. They aren’t just interested in their commission; they’re interested in helping you sell your house. They go to work every day because they love their job. The agents who drive shiny cars and wear nice suits have had a lot of experience and worked their way up the ladder.

 

  • Any property manager will do

This one will get a round of horrified looks. A good property manager isn’t easy to find. So don’t look at listings on Gumtree. Ask around and get recommendations. Other property investors are willing to tell you about good service when they experience it.

 

  • Inspections can be passed or failed

Not so. It’s an inspector’s job to go through the property and mark what’s good and what needs improving. If there are more crosses than ticks, you have a reason to be nervous.

 

  • Renovation before selling equals bigger profit

Age doesn’t justify total replacement unless your appliances are old and busted. Sometimes a coat of paint and new carpet is all you need. Real estate is more than a pretty facade; you must consider location and lifestyle as well.

 

  • CBD is the place to invest

This depends on who your ideal tenant is. People ideally want to live close to work, especially when the office is in the CBD. But will a family be looking for an inner-city apartment? Not likely. Will a mechanic set up shop in the city? Also not likely.

You must also think about rent. Prices are soaring, leaving office spaces and apartments empty. This burns a hole in property investor’s wallets. Regroup and rethink your strategy.

https://www.realestate.com.au/invest

 

  • My property price will only increase with time

Not necessarily. Real estate prices depend on market trends and demands from customers. If the market drops, so will the value of the property. And expensive price tags drive potential tenants away.

 

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