Claiming the Maximum Deductions Out of Your Rental Property

Are you paying lots of taxes? Worry no more. You must start checking your options – can you claim depreciation on a rental property. Investing in property has already emerged as a top choice for many individuals. Additionally, there are several expenditures that you may claim in the form of tax deductions from a rental property. There are scenarios when allowable deductions may surpass rental income and put you in a loss position. It is also known as negative gearing.

Given below are some costs that will help you enhance your deduction on your rental property:

1. Borrowing costs:

This expenditure is linked to the fee produced when borrowing money for the purchase of a property. It is worth noting that these expenditures are eligible for deductions over a period of loan or more than 5 years period. For this, the total borrowing expenditure must be over $100. You will be able to claim several borrowing expenditures which may include Loan establishment fees, mortgage broker fees, stamp duty levied on the mortgage, lender’s mortgage insurance among others.

2. Gardening fees:

These costs are also eligible for deduction. This will include dump fees, tree cutting charges, replacement costs incurred in garden tools, sprays, fertilisers, mower expenses, etc. You may speak to leading professionals as well if you face difficulties in calculating your tax depreciation cost.

3. Land Tax:

Land tax is the tax levied on the value of the land which is also tax-deductible. The bill of assessment of the land tax payable will be provided soon after the land tax registration form is submitted.

4. Repair and maintenance cost:

The cost that you incur when doing repairs and maintenance is also deductible. However, the cost can be claimed at a specific rate every year. Repairs are referred to as the cost that you bear when there is damage or deterioration to the property. For instance, when you replace a part of a window damaged during a tornado or hurricane, it may also include repairing electrical appliances, plumbing, painting the rental property, and repairing due to falling of tree branches, etc.

5. Telephone expenditures:

You can also obtain deductions on expenses incurred due to telephone calls. The telephone calls that you make while maintaining the investment property are always tax-deductible. You should calculate precisely all the allowable depreciation on rental property to maximise your deduction.

6. Water expenditures:

It is interesting to note that water rates are also tax-deductible. However, it will happen only in those scenarios when you pay the water bills and not your tenant.

7. Stationary and postage expenses:

This may include the expenses linked to the purchase of pens, paper, or various other office stationery items. It will also comprise the postage used for a rental property to communicate with agents or tenants. These expenses will be deductible.

Conclusion:

Building tax depreciation may also include various expenses for which you may claim a deduction. You may also seek deductions on agent fees and landlord insurance to cover the property from being damaged.

Uncovering the Tax Benefits of Commercial Property Depreciation

Are you facing difficulties deciding whether to invest in a commercial or residential property for your portfolio? It may become difficult to comprehend tax depreciation allowances available for investors of commercial property over those available for residential properties. There are scores of rules that are applicable and differences in depreciation discovered may vary considerably. However, when you gain awareness on commercial property depreciation, it will assist you in making informed decisions. You must acquire detailed knowledge of depreciation rules for rental property and commercial properties.

Given below are some ways that will help you in enhancing your tax benefits:

1. Are older buildings eligible for building allowance?

The building allowance can be described as a decline in the value of commercial property’s concrete, mortar, brickwork, concrete, etc. The date when construction began will help in deciding what building allowance you may claim. For non-residential properties, allowance is kept at varying interest rates. It is 2.5% (20 July 1982 – 21 August 1984), 4% (22 August 1984 – 15 September 1987), and 2.5 % (16 September 1987 – Onwards). You should have detailed knowledge of investment property depreciation rules but if you don’t, contact Deppro today to learn more.

2. Claimable objects differ by industry and actual life:

Every year, the ATO prepares a list of assets that you can and cannot claim. Commercial property owners do not have their own list. However, some assets are eligible to be claimed at varying rates to residential properties. For example, carpets are eligible to be claimed for a period of eight-year in commercial and ten years for residential. You will also find industry-specific assets that the ATO has specified for depreciation claims. And, if you have a restaurant, you can claim items in particular to your line of business. It is important to get the property valuation done by an expert.

3. Tax break assists small-time business owners:

It is worth noting that small business owners can significantly enhance their cash flow with the help of a tax break. According to the May 9, 2017, federal budget, the immediate asset write-off got stretched till June 30, 2018. The federal budget projected to stretch the legislation in 2018 once again and, after a long postponement, the extension of legislation was passed by Senate on September 12, 2018.

Conclusion:

The bigger the building, the more you may claim. The height of the building may play an important role in the amount of depreciation available for property owners. You may refer to ATO property depreciation rules. Bigger structures may attract increased deductions because there is more capital works expenditure involved in the building construction. And, multi-story buildings largely have common property assets like lifts and fire services that may lead to plant and equipment depreciation.

Getting Smart about Tax Depreciation

It is vital to claim depreciation as it is one of the most important tax benefits that you can avail. However, several property owners are not aware of this benefit. You should never overlook depreciation for tax purposes.

Depreciation can be defined as a non-cash deduction. You do not have to invest even a single penny to claim it. As any property ages, it begins to witness some wear and tear. The Australian Taxation Office (ATO) does not bar investors from claiming rental and investment property depreciation. It is interesting to note that the ATO has recognised over 1500 items as depreciable assets. You may seek the services of an expert Quantity Surveyor to claim these deductions.

Given below are some key points that you must be aware of while claiming tax depreciation:

Plants and equipment:

The ATO has identified and specified that plant and equipment undergo wear and tear at a relatively fast rate. As a result of this, these items may need to be replaced a little earlier than others. Plant and equipment may include the loose assets or control panels for automated systems in the building. These items include carpets, ovens, blinds, cooktops, AC systems, door closer, garage door motors, and freestanding furniture among others. If you are still facing some confusion, get the Deppro contact number and eliminate all your doubts.

Capital works allowance:

These are based on the past construction cost of the investment property. You will be eligible to claim capital allowances on your actual residential property where it was built after September 15, 1987. It is important to note, you can claim any qualifying renovation or developments completed either by you or the earlier owner. For instance, if you constructed your property in the year 1996, you can assess the cost to construct the property at that time and you will be able to claim 2.5 percent of the value each financial year. The depreciable items are driveway fences, sinks, basins, baths, garages, door & window fittings, etc.  You may also like to read helpful Deppro reviews to clear your doubts.

Can you claim depreciation if it was built before 1987?

To be eligible for depreciation deductions, the building does not have to be new. New and old residential and investment properties will attract depreciation deductions alike.

Depreciation schedule:

You must be aware of depreciation schedules and how they may be able to help you to save money. Any building qualified to claim building write-off allowance has a maximum life of 40 years from the date when construction was finalised. In other words, the owner will be eligible to claim a maximum of 40 years of depreciation on a new building.

Conclusion:

You must prepare your house depreciation report effectively to minimise your tax liabilities. According to research, 15 percent to 35 percent of the construction cost of a residential property is manufactured from plant & equipment items. You should maximise their value in order to maximise your depreciation claim. Your depreciation schedule will outline the specific deductions available on a particular property; the details will come handy for the property investor while preparing a tax return report.

Why you Need a Depreciation Schedule when the Construction Cost is Known

As the financial year comes to an end, it becomes imperative to get your depreciation ATO tax depreciation schedule sorted. You gain several benefits of securing a depreciation schedule prior to June 30. It will help in enhancing your return and make the most of your investment. It is worth noting that a quantity surveyor report also consists of a schedule of depreciable assets also known as capital allowances. Meanwhile, a different deduction for the fall in the value of depreciating assets in a rental property can be claimed.

Given below are some of the points that you must be aware of the depreciation schedule:

1. Depreciation deduction:

The Australian Taxation Office permits the property owners to seek a claim for depreciation or fall in value as a deduction. Depreciation has been categorised as a non-cash deduction thus meaning an investor won’t need to spend money to be able to make a claim. It is for this reason that depreciation deductions are ignored. And, it becomes an expensive mistake for investors as depreciation deductions present huge taxation advantages. When tax time arrives, property owners should ensure they have claimed all the deductions for which they are eligible. Income-generating property owners must seek claims for property depreciation tax deduction linked to the structure of building along with plant and equipment assets.

2. Claim cost of schedule:

A depreciation schedule has got a one-off expense that continues until the life of the property or for forty years. It will ensure that the owners have claimed their respective depreciation entitlements precisely.  It is worth noting that the cost of the depreciation schedule is 100% tax-deductible. One of the major benefits of securing a depreciation schedule prior to June 30 is that investors can claim the fee straight back that financial year. Investors must estimate tax returns in a precise manner.

3. Partial year claims:

In the case that you purchased an investment property and are waiting for the next financial year for claiming a deduction, you may miss considerable savings. Investors will be able to claim partial year deductions for the tenure in which they acquired their properties before June 30. The depreciation values of assets are precisely adjusted in accordance with the period during which it was owned. For instance, if the property was owned or rented for six months, the owner can get 50% yearly deductions.

Conclusion:

Investors must arrange a depreciation schedule at their earliest convenience. Deppro quantity surveyors have expertise in preparing depreciation schedules that save our clients lots of money.

A Depreciation Checklist for Commercial Property Owners and Tenants

You may find it difficult to comprehend the various tax depreciation allowances available for owners and tenants of commercial property. With increased awareness about Australian tax depreciation, property owners and tenants may make more informed financial decisions and enhance their cash flow. A property owner is eligible to claim depreciation for Division 43 capital works that they have paid for. This may include building, structural additions, and recently constructed or renovated kitchens, outdoor areas, and improved bathrooms. Additionally, Division 40 assets are also claimable that they have paid for and included as part of the tenancy agreement. Tenants may also claim depreciation for building fit-out in case they paid for it as along with machinery, furniture, etc.

Here is the checklist:

1. Capital works deductions:

These deductions are applicable to structural elements of a building. Capital works deductions will apply on bricks, mortar, walls, tiling, flooring, wiring, concrete, mezzanines, etc. These deductions are based on the past expenditures of the building. And, apart from the tourists’ accommodation, they can be claimed on commercial buildings in which construction started after July 2, 1982. Capital works deductions for tourists’ accommodation are eligible to be claimed on building in which construction began after August 21, 1979. Consider these factors when you calculate depreciation for property.

2. Plant and equipment depreciation:

Plant and equipment assets can be defined as those assets that are removable within an income-generating property. It may include hot water systems, ceiling fans, carpets, air conditioners, exhaust fans, light shades, and blinds, among others. Depreciation for plant and equipment assets will be calculated on the basis of the individual effective life of every object as specified by ATO. The actual life of assets tends to differ from one industry to another industry. Therefore, it becomes significant to refer to an expert Quantity Surveyor, as they will ensure that deductions are calculated appropriately.

3. Tax depreciation schedule:

A tax depreciation schedule can be described as a report that includes all deductions in the income-generating property. The report is prepared with the assistance of an expert Quantity Surveyor. It can assist to enhance property owners’ and commercial tenants’ flow of cash. The quantity surveyor will require a few details while preparing a schedule. Amid the vast commercial property types, an expert site inspector will have to carry out detailed scrutiny. In this they will assess the building and floor coverings, specify construction methods, the material used, condition of te property, and workmanship, among other things. The Quantity Surveyor will then use these details to enhance depreciation deductions.

Conclusion:

Tax Depreciation Schedule will remain in existence for forty years. The quantity surveyor will also extend his help to property investors in claiming depreciation on investment property. If you are keen to boost the capital works and depreciation deductions, you must always hire a professional quantity surveyor as they will help in processing known and unknown costs alike. Not to mention, they can also asses the contract of sale and tenancy contracts to make sure that building works and assets are correctly allocated between entities.

4 Commercial Property Depreciation Facts You Must Know

Many commercial property owners aren’t aware that they are eligible to claim depreciation on property. According to a study, approximately 80% of investors miss the benefits of their commercial property and end up losing plenty of money every year in Australia. It is imperative for all commercial property owners to claim depreciation. These deductions can significantly enhance the positive cash flow of an investor and diminish the negative cash flow. We have prepared a list of significant factors that property owners may consider in a bid to earn more from their commercial property.

Given below are the factors about commercial property depreciation:

1. Depreciation and how you can claim it:

According to the ATO, it is necessary for investors to prepare a report of their income-earning from their commercial property. This will prove useful when preparing their income tax assessment. And, property investors of commercial property are eligible to claim depreciation. Depreciation takes place when a property shows signs of wear and tear in its structure, fixtures & fittings over the years. It is considered to be a non-cash deduction which means that investors must not spend any amount to claim it. Property investors must calculate depreciation on rental property in an accurate manner to maximise their claim.

2. Life of a building:

Property owners will also be eligible to claim any latest renovations that took place since July 20 1982 snd, it doesn’t matter if it was carried out by an earlier owner. Additionally, plant and equipment depreciation can be claimed as well, irrespective of age. The instances of plant and equipment may include carpets, and ac units, among others. Expert quantity surveyors will carry out a property inspection and take images and prepare a list of additions made to the commercial property. They will offer an itemised tax depreciation schedule to property investors that include the availability of deductions for a period of 40 years. You may seek a Deppro review from our professionals, in case you encounter any confusion.

3. Depreciation of other items:

While preparing a commercial building property depreciation schedule, it may be tough to work out who is eligible to claim depreciation for specific items. Landlord and the sitting tenant will be able to claim depreciation for any fit-out made to a property. Tenants of commercial properties will be eligible to seek a claim of depreciation for any fit-out that they introduced. It may include blinds, shelving, and carpets, among others. Additionally, owners of a commercial property can also claim depreciation on any installed asset or assets left by a previous tenant.

4. Select a method:

After calculating depreciation, property investors may choose two methods for making a depreciation claim. This includes: diminishing value method and prime cost method – property investors can use either. Deductions will be calculated according to a percentage of balance you leave to subtract under the diminishing value method. Meanwhile, the deduction for every year can be calculated as a percentage of cost under the prime cost method.

Conclusion:

You must be aware of how to calculate depreciation for your commercial property accurately to maximise your gains. If you face any difficulty in calculating depreciation, use our Deppro contact number, and call our experts. They will help you calculate it accurately. You may consult their quantity surveyor as well who have achieved specialisation in tax depreciation.

All You Need to Know About Taxes on Rental Income

When you have secured ownership of an investment property, you collect rent from your tenants. It is worth noting that you must declare that portion of rental income on your taxes. You have the scope of deducting all the expenses that you incurred while maintaining your rental property. You must carefully check the Australian tax depreciation rules. Some of the common expenses that you may claim include maintenance costs, depreciation, and borrowing expenses. You will not be able to claim deductions for those things that your tenant/s paid for. Tenants pay for utility bills or improvement bills among other things.

If you have become a landlord recently and you are facing some complications, here is how you may avoid common tax mistakes:

You need to make sure that your property is available for rent:

You need to make sure that your property is actually available for rent to claim a tax deduction. Along with this, you must showcase a clear will to rent your investment property. You may advertise the property so that someone can rent for it. You should read in detail about investment property depreciation rules to remove all doubts. It will be ideal on your part to avoid unrealistic rental conditions.

Get initial repairs and capital improvements correct:

You will be able to claim for ongoing repairs that are linked to wear or tear or some other damages. The damages must occur due to renting out the property and you will be able to claim them in full. You can claim them in the similar year you faced those expenses. If you get the hot water system or a part of a broken roof repaired, these can be deducted right away. Initial repairs for damages that took place when the property was bought like replacing damaged light fitting can’t be deducted immediately.

Claiming borrowing costs:

If your borrowing costs happen to be more than $100, the deduction will get spread over five years. And, if borrowing costs are below $100 or just $100, you may claim the entire figure in the similar year you faced those expenses. Leading professionals fees, costs incurred in preparing will help you understand how depreciation for property needs to be calculated. Borrowing costs may include loan establishment fees, costs incurred in preparing and filling mortgage documents, and title search charges.

Claiming purchase expenses:

You will not be able to claim any deductions for the expenses you incurred on purchasing your property. These may include the conveyance cost and stamp duty charges. When you sell your property, these expenses will be used while working out whether you need to pay capital gains tax.

Claiming interest on a loan:

You may claim an interest in the form of a deduction if you take a loan for your rental property. If you use a part of that loan money for personal use, you will not be able to claim interest on that portion. You will only claim that part of the interest that is linked to the rental property.

Conclusion:

Therefore, we can conclude here that the above points will eliminate all your doubts pertaining to rental income. You may talk to expert Quantity Surveyors to understand depreciation rules for rental property. When a rental property is rented out to family or dear ones at below market price, you must know what to do in such a scenario. Many property owners face difficulty in this situation. It is worth noting that you may claim a deduction for that tenure up to the rental income you received. You must have proper evidence of your income and expenses so that you can claim for things you are entitled to.

How Depreciating or Writing Off Older Equipment and Building Assets Works?

A major mistake that many investment property owners often make, is that they presume a few things about their property. One of those presumptions is they think their property was built years ago, so there will be no depreciation tax benefit. As per law, the capital works component of the property is eligible for the claim on properties where construction began post-September 15, 1987. Two vital elements come under consideration while calculating depreciation that may include capital works deduction and plant and equipment.

Given below are some crucial aspects that you should not overlook when it comes to depreciation:

1) Capital Works Deduction:

This refers to the structure of the building or any fixed items. It will include some items that will be categorised as capital works while computing depreciation deductions. These items are kitchen cabinets, windows, doors, walls, bathtubs, external decking, etc. And, you may calculate depreciation for structural items at a 2.5 percent rate per year for 40 years. It may start from the construction start date and as long as it started after September 15, 1987. Meanwhile, properties built before 1987 often underwent a few renovations. Older property owners will discover that they are still eligible for capital works deduction for renovation concluded within the enacted date. It does not matter if they were concluded by a previous property owner. Therefore, it is necessary to calculate rental home returns.

2) Plant and Equipment Assets:

These may include those items that can be removed in a convenient manner from the property. It may include smoke alarms, carpet, door closers, ovens, AC, light fittings, shower curtains, etc. A whopping 1500 items have been recognised as depreciable plant and equipment by ATO. The age of these items remains insignificant while calculating depreciation deductions available for a property owner. Every item has been allocated an individual effective life and rate of depreciation through which deductions shall be calculated. It is vital to obtain a tax depreciation schedule for rental property.

3) Old vs New Depreciation:

Let us comprehend the difference that a depreciation claim may make for owners of new, old and just built investment properties. Let’s suppose all properties bought at $4,60,000. The depreciation for properties of similar price and age may differ. It will depend on the size of the property, the number of plant and equipment assets in the property. Further deductions shall be applicable if there is some additional works or renovations carried out. The owner of a just constructed unit or home will get higher deductions than the owner of the old residential unit built after 1980. In the first financial year, the owner of the old residential house is eligible to claim $3,298 in depreciation. Meanwhile, the owner of the old residential unit may claim $3,846. After 5 years period, the owners of these properties shall get $12,357 and $13,576. These have emerged as substantial deductions that the owner of an old property must not overlook.

Conclusion:

The above points will help in depreciating older equipment or building assets. You must remember that if you destroy your current kitchen for upgrading to a new one, you may claim the existing items. You can seek the help of a quantity surveyor who may help you carry it out with a property depreciation schedule. For instance, rather than depreciating the old kitchen estimated at $4000 in the next 4 years, you are eligible to claim $4000 right away. They can also help you obtain the latest depreciation schedule for a new kitchen that can be claimed for 40 years.

Tax Deductions That Property Investors Can Claim

When you seek to achieve financial freedom, an investment property can be an attractive proposition. And, investment property comes with tax benefits. A landlord gets several options to bring down their annual tax bill. A large number of times, these deductions are the difference between a negative cash flow and a positive cash flow. Investors are eligible to claim deductions on their property for the period/s in which it was rented. And, they can claim a deduction for the portion of an expenditure that was used for business purposes. Therefore, they should calculate depreciation on rental property and prepare a record to prove all these details.

Here are the top tax deductions that property investors can claim:

1. Loan Interest:
Investors will be eligible to claim the interest levied on a loan for an investment property. They can also claim interest on any bank fees for servicing that loan. For instance, if you happen to incur $20,000 interest on your loan and $200 in loan fees, you can always claim them on your personal tax return.

2. Rental Advertising Expenses:
Landlords make efforts to find tenants and spend money on various types of advertisements. If you advertise your property using various online tools, brochures, and signs, you can claim them in the same year.

3. Land Tax:
If you have a rented home on your investment property, you use the land tax as a deduction. The tax and the timing may differ between states; the timing will decide when you can claim the cost. You may consult the tax advisor of that particular state to get an idea of the estimate tax returns. He will also let you know that you have claimed the right amount in the right year.

4. Strata Fees:
If your property happens to be on a strata title, you can also claim the cost of body corporate fees. If the fee includes garden expenditures and maintenance, you won’t be able to claim these expenses separately.

5. Capital Gains Tax Discount:
If you made a capital gain by selling the investment property, you must pay tax on profit. If you purchased and sold the property in a period of 12 months, the net capital gain gets added to the taxable income. It will raise the amount of income tax you will be paying. If you had possession of the property for more than a year before selling, you will get a 50 percent capital gains discount.

6. Building Depreciation:
Depending on when your property was constructed, you can claim a deduction on the depreciation of the building structure. You can also claim a deduction if you undertook any renovation on the property. You should have a clear idea about the allowable depreciation on rental property.

7. Stationary and Phone Expenses:
If you are a landlord, it is similar to running a business venture. You can claim deductions on phone costs, internet, electricity, stationary, etc. But, you must claim for that portion of these expenditures that relate to the investment property.

Conclusion:
You must have a clear idea of the various deductions that you can claim. As per the record of ATO, there are 1.9 million property investors residing in Australia. The country has a whopping 2.7 million rental investment properties. Every year, many property investors miss making claims of allowable tax deductions. It happens because they lack the awareness of all the expenditures they can claim as tax deductions. As a property investor, you should be aware of the tax deductions and Deppro depreciation to make the most of your investment property.

Own a Rental Property? Know Your Tax Deductions

Rental properties are a very lucrative investment opportunity for those involved in real estate. Apart from creating a property as an investment, it also turns the investment as a regular source of capital from tenants. However, rental properties also come with some significant taxes. But if you are smart enough, there are ways to save on the taxes. Let’s take a look at how you can claim tax refunds on your rental property.

Capital Gains and Tax

Before we delve into claims about tax deductions, we must understand an important concept: Capital Gains Tax. A capital gain is when the selling price of a property is more than its cost base. A capital loss is the reverse; the selling price is less than the cost base. The CGT is applicable when you derive capital gains from selling your property.

To minimize your CGT, the straight route is showing the capital gains as low as possible. There are perfectly legal ways to do so, primarily by including all possible expenses into the base cost of the property. You can also apply for capital losses from previous years if any. Creating the investment property depreciation schedule and capital works schedule is another way.

Tax Deductions You Can Claim

There are a variety of expenses you can claim for tax deductions, like:

  • Advertising expenditure for finding tenants
  • Any interest incurred over property investment loan
  • Insurance of the property
  • Travel expenses incurred while traveling to inspect your property (subject to scrutiny)
  • Water costs
  • Council costs, if any
  • Management fees of your real estate, if you hired professional help for the same
  • Deprecation on residential rental property assets like air conditioners

While it seems straightforward, being able to claim these tax deductions come with certain requirements. For starters, you must maintain all physical bills and/or bank statements for transactions covered above. Two things must also be maintained accurately: depreciation schedule and capital works schedule.

The depreciation schedule lists all the properties/assets you own on the rental property. It also mentions how much you can annually claim in depreciation tax deduction on rental property. The capital works schedule consists of the building and construction costs of the rental property. It is important to maintain all the bills while you were building the property. In case the bills are amiss, one can ask an architect or builder to assess the costs involved in the construction of the property.

Tax Deductions You Can’t Claim

There are also certain costs that you can’t claim for tax deductions:

  • Any cost incurred while you used the rental property for your personal use
  • All the utility bills paid by the tenants, like electricity, etc.
  • The inherent costs associated with buying and selling of properties are already included within taxes and thus cannot be claimed for tax deductions
  • Sometimes, owners borrow money against the property, like selling its equity or mortgaging it. The costs involved in such loans cannot be tax deducted.

Note: While we mentioned that inherent fees involved in buying/selling of properties are not eligible for tax deductions, many other charges during the buying/selling can be eligible for the same. Thus, it is advisable to maintain all bills of the process.

Final Words:

Rental properties are a great investment opportunity. By claiming the tax deductions in the right way, you can increase your profits from your property even further.