What is Property Depreciation Schedule, and How Can Tax Depreciation and Depreciation on Your Investment Property Increase Cash Flow
You have purchased a residential property in a good neighbourhood as an investment, so depreciation is the last thing you probably consider. After all, the objective is for the property to increase in value. Property depreciation is a fact, but if managed as part of the investment, it becomes a profit generator for the savvy investor.
Let’s Explain Depreciation on an Investment Property…
The residential property consists of two parts: the capital works and the plant and equipment. These two parts must always be separated in the portfolio, as the former appreciate, while the latter almost always depreciates under normal conditions. We fleetingly describe the differences and reasons below:
- Capital works. This is the actual property, meaning the plot of land, the house and all other non-removable structures. Capital works constitute the real investment and should be kept in a well-maintained state of repair for maximum return later at the disposal date. Usually, capital works do not depreciate, only requiring repairs.
- Plant and equipment. This is the technical term for all the removable or replaceable items on the property. Examples include the curtain rails, the stove, the water heater and security gates. These items usually have a limited lifespan and will be replaced several times during the investment period. The depreciation on the plant and equipment must be accurately calculated for maximum tax benefits.