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3 Important Steps to Expand the Portfolio of Australian Property Investors

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The decision to invest in a property in Australia is a significant one. And, you must do thorough research prior to starting your investment. The depreciation tax benefit is immense in this country and this is the reason why many investors invest in property. It is significant to decide when, where, and how to expand your property portfolio. It will help in enhancing your chances of success and minimise the risks associated with the investment. Investment in the property will help you in claiming the valid tax deduction like depreciation.

Given below are some of the vital steps that you must consider:

1. Carry out a thorough research of the property market:

It is vital to carry out a research when you either plan to purchase your first investment property or expand your portfolio. You may evaluate economic aspects and the potential of capital growth in areas with lesser entry charges and predicting high growth. You must also check Development Applications to find out any roads or infrastructure projects. The projects will contain new schools, parks, commercial spaces, etc. These things will attract a large number of renters in the area. It is also significant to examine areas with a vast range of public transport options, job opportunities for tenants, etc. Knowledge of these factors will assist in deciding future property income possibilities. You should also be aware of the existing ATO depreciation rates.

2. Evaluate acceptable risk:

You should also be aware of the kinds of risks that you are ready to accept. All the property investments are plagued with some sort of financial risk. And, identifying your limits will be vital in reducing your possible stress. It will also help in ensuring that you may not end up overextending your financial obligations. You must identify possible changes in economic aspects that may include interest rates or repairs and maintenance that might be needed on the property. It will also help in preparing your tax depreciation schedule for rental property.

3. Select vast locations and properties alternatives:

If you are keen to lessen your risk, it is significant to diversify your property portfolio to enhance your access. You must also spread the financial risks in a vast range of assets. In the financial year 2018/2019, it was discovered that 74% of investors bought investment properties in metropolitan cities. Deppro also noted that investors liked to stay with their comfort area with a vast 92 residing in metropolitan cities. The investors also bought investment properties locally compared to 8% who invested in local areas.

Conclusion:

You must have identified by now the significance of expanding your property investment portfolio. You can get your federal tax depreciation schedule prepared by experts to enhance your depreciation claims. A large number of property investors prefer to lay emphasis on residential rental properties. But, commercial properties also provide several advantages and you may also consider them to make your investment. But some investors feel that commercial properties may attach greater risk as a result of changing economic aspects. There is also a potential lengthy vacancy rate between tenancies.

Commercial Property: Frequently Asked Depreciation Questions

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You may take the word ‘depreciation’ as a loss. Yes, you are right in your approach, as the real meaning is all about losses and reduction. But depreciation, in reality, stands as profitable for business owners considering their depreciation claims. Deppro depreciation is one of the significant reasons which compel people to invest in real estate. Being an investor, there are many things that one may be curious about.

So here are a few frequently asked questions that may help your inquisitive mind to get answers about the same:

What do you mean by depreciation?

We all know that when a property or building is held or a long time, its value starts facing a depreciation. Thus accordingly, the owner becomes eligible to claim for tax depreciation owing to the wear and tear caused on the property. There are basically two kinds of categories on which a discount can be claimed. The first category is plant and equipment depreciation which is inclusive of removable items of the property such as AC’s, fans, lights, etc. On the other hand, the second is capital work depreciation which is applicable to permanent or fixed assets that cannot be moved, such as bricks, windows, etc.

How to claim for depreciation easily?

The very first thing to do in such a case is to seek assistance from property depreciation consultants to design your property depreciation schedule. One is required to pay a one-time fee for availing BMT tax schedules which lays out all the eligible tax deduction criteria. Ranging from depreciation in manufacturing, retail, office towers, and a lot more, this lists down all the eligible tax deduction standards for your commercial property.

Can you calculate depreciation on your own?

Everything cannot be your cup of tea; thus, it is always better to leave such things in the hands of a professional. You can knock the doors of quantity surveyors to get such a task done with ease.

Why does depreciation stand as important?

Owners can claim a huge amount of money as a deduction in tax every financial year. So you can very well understand how this depreciation minimizes the amount of tax that you have to pay during the financial year-end. It enhances the cash return and also balances the value for operating a business or being a property owner.

Are there any age criteria for a building to claim for a deduction?

Both old and new commercial buildings can reap in some depreciation benefits for the renters and the tenants. You can also get connected with an expert quantity surveyor to gain further information about the same. Ranging from final inspections to investment property calculator, occupancy certificates, they can also help you in efficiently calculate the age of your property.

Can new property owners insist for a depreciation claim based on the renovations taken up by the previous property owner?

Yes, the professionals can take into account all the renovations done on your property and use the data for preparing your depreciation schedule. Just for instance renovations such as plumbing, electricity, and similar such things can be taken into account for qualifying the depreciation claims.

Bottom Line:

So these were a few questions and answers that you must be aware of while preparing a rental property depreciation schedule. If you have more such questions hitting your mind, do let us know!

Tax Deductions That Property Investors Can Claim

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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.

Significance of Real Estate Depreciation for Rental Property Investors

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Many rental property investors fail to comprehend numerous tax advantages that they are entitled too, in particular, real estate depreciation. When you own a rental property, you are bound to receive tax advantages. Real estate depreciation can be defined as an income tax deduction wherein a taxpayer can retrieve the expenses or other costs. A depreciation schedule can bring down the taxable income of investors. A large number of investors also call it; a phantom expense. The IRS allows investors to avail tax deductions on the basis of an apparent decline in the real estate’s value. Real estate depreciation expects that rental property’s value dip over a period of time due to wear and tear. The investor may get cash flow from the property and may reflect tax loss courtesy because of real estate depreciation.

Advantages of displaying investment property tax depreciation

You can avail the advantages when you show investment property tax depreciation. The main advantage is that it can bring down the overall tax burden. It can also benefit real estate investors as they can save a substancial chunk of money every year on their taxes.

Investment properties that can be depreciated for tax deductions

If you want to make your property eligible for depreciation, you need to meet certain requirements. The taxpayer needs to have possession of the rental property and can also depreciate capital improvements. You must use the property in business or income-generating activity. If a taxpayer uses the property for business as well as for personal reasons, they can only deduct depreciation for business use. And, the property needs to have a calculable advantageous life of more than one year. You may seek some professional advice on how to calculate the exact depreciation residential rental property.

Tips to calculate real estate depreciation

It is not a mammoth job to calculate the exact real estate depreciation. You can carry out the calculation in 3 easy steps given below:

  1. The real estate value is constituted by land and building values. And, depreciation applies only to the building. The first and foremost step is to allocate the property’s purchase cost. After that, the purchase cost must be allocated between the land and building value.
  2. As you know the land is not liable for depreciation, it is the building that will be subject to depreciation. The building is to be depreciated over the IRS prescribed useful life. The life is labeled as 27.5 years for residential rental property and 39 years for commercial land. Now you ought to divide the building value by 27.5 to obtain the depreciation expenditure. You can also take the help of experts to prepare the rental property depreciation schedule.
  3. Now you need to multiply the depreciation expenditure by the marginal tax rate. This will give you property tax savings from real estate depreciation.

Conclusion:

Real estate depreciation is a vital tax deduction for the scores of real estate investors. The real estate investors must not neglect it. It is crucial for investors to comprehend the fundamentals of depreciation. It will offer benefits to investors with tax planning. They will also comprehend the important after-tax investment returns. In the longer run, it will help them in claiming depreciation on a rental property.

 

Ways to Cut Your Tax Bills through Depreciation

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You must know that the more you use an item, the lower it becomes in value. You have probably realised, that when you try to sell your used car after one year, you would get a lower value even if it was in very good condition. This universal accounting is called depreciation. In case you own a rental property in Australia, this rule also applies to your property. But there is a flip side to this dark cloud. You can claim tax deductions on the annual depreciation on your property. In case you are not completely aware of the implications of this, read on. Like most tax rules, the rules pertaining to depreciation also have lots of fine print. It is, therefore, recommended that you get the help of professionals. You must hire the services of a tax accountant along with trained Deppro quantity surveyors. Let us discuss a few useful things you can keep in mind.

Assets on Which Depreciation is Permitted

For a rental property that you own, there are two ways of claiming depreciation. The first is on the fixed parts of the property, like the building itself. It would also include all permanent assets built into the house. The second category is referred to as plant and equipment. This includes all additional fittings and fixtures you have installed in your house. Some examples are: upholstery, furniture, electrical appliances, and even ventilation systems.

Here are three easy tips which can help you maximise the tax gains on depreciation:

Tip#1: Add on as Many Fixtures as Possible

Let us say you build an indoor swimming pool. While it would cost you money to build and then maintain, it has a tax benefit as well. This is because it gets added to the plant and machinery segment of your tax depreciation report. The more things you add, the greater are your benefits in two ways. First, these fixtures will provide a better quality of life. Second, you will be able to claim higher tax benefits.

Tip#2: Keep an Eye on Asset Value

When we mentioned plant and machinery above, it had nuances. The ATO recommends different depreciation rates for a tax return Australia. Often, the different slabs are based on the cost of the asset. So a gadget that costs less than $500 might attract depreciation at a different rate compared to the same gadget priced higher than $500. Do consult your tax accountant before you purchase your house fittings.

Tip#3: Benefit from Residual Value Write Off

Property owners often plan on renovating older properties they own. If you are also making similar plans, make sure you have a chat with your tax consultant. The reason we say this, is that it is very likely that you might be removing some old fittings. The written-off value of those fittings could be claimed the same year under depreciation.

Conclusion:

Most property owners have now realised the many benefits of claiming tax deductions due to property depreciation. But simply knowing the broad guidelines might not be enough. You should be on the lookout for legitimate ways to derive the maximum benefit.

What Are the Different Ways to Calculate Depreciation?

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For a company that owns assets, the annual asset reduction is reflected in its financial statements like the balance sheets and the tax depreciation reports. There are different ways in which the value of depreciation is calculated. This depends on the country or region, of course and the calculation method could depend on the type of a particular asset. Let us understand this with the example of strata corporations with five or more strata lots. They need to obtain a specific strata property act depreciation report.

Let us look at three different ways to calculate depreciation.

1. Straight-Line Depreciation:

This is a single dimension calculation. The basis of the calculation is the estimate of how long the life of a particular asset. The straight-line depreciation method assumes an estimated value of the asset after the passage of those many years. After that, it is a simple matter of subtracting the final value from the original value to get the amount of depreciation.

2. Sum-of-the-Years’ Digits Depreciation:

In this method, the useful life of an asset is calculated/estimated. The numbers of each of these years are totalled. So, if an asset has a 7 year estimated span, then the sum would be 7 + 6 + 5 + 4 + 3 + 2 + 1 = 28. So the rate of depreciation in the first year would be 7 / 28 = 25%. The second year’s depreciation would be 6 / 28 = 21%, and so on, till it depreciates by less than 4% in its last year.

3. Declining Balance Depreciation:

There is a difference in the ways in which the above two ways affect the depreciation amounts listed on an ATO tax depreciation schedule. The first one shows a uniform rate of depreciation throughout the expected life. The second one assumes a higher rate of depreciation in the initial years. This reduces as the years go by.

The declining balance depreciation method also takes in much higher depreciation in the initial years. The depreciation on any asset is usually written off the owner’s tax liability. That is why this method tries to write off the depreciation costs faster. The logic behind this is that most assets are more useful in their initial years.

Conclusion:

The interesting thing is that there are several more methods of calculating depreciation. The second even more interesting thing is that the rates and depreciation calculated by each of these methods would be different. That is why the services of an experienced and capable company like Deppro Victoria should be used. They have experts who would understand your business and your accounting styles. Accordingly, they would suggest the best way of calculating depreciation and claiming tax breaks.

 

What You Should Know about Property Depreciation

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Most of us begin our real estate affairs without any knowledge of property depreciation. However, knowledge about the term may prove advantageous in the long run, particularly if you have owned a property for a long period of time. In short, investment property depreciation can decrease taxes that you may have to pay as tax time arrives. You can also claim depreciation tax on various other things as well which may include the vehicle that you have been using for generating income. Similarly, you can also seek benefit from real estate property tax depreciation. Your sound knowledge on depreciation for tax purposes will prove beneficial for you.

Here are some important things you should know about property depreciation:

1. Is your property too old for claiming depreciation?

If your residential property was constructed after July 1985, you can still claim building allowance as well as plant and equipment. However, if construction began before the aforementioned date, you will only be able to claim depreciation on plant and equipment.

2. Should your accountant prepare this report?

In case your residential property was constructed after 1985, your accountant will not be allowed to assess construction costs. Neither the real estate agents nor the solicitors can estimate the construction cost. You should be aware of the important details of the tax depreciation report and tax ruling 97/25 issued by ATO.

3. How can you claim depreciation for your property?

It is essential to obtain a property depreciation report. A qualified quantity surveyor will help you secure that report. The surveyor is an expert in estimating the cost of any property. They are qualified enough to prepare a depreciation report even if construction costs are not known.

4. Will you require scrutinizing your property?

It is essential to obtain site inspections which satisfy ATO requirements. The expert quantity surveyor will make sure that all of the depreciable objects are calculated along with their images. It will ensure that you do not skip any deductions. In the scenario of an audit, the documentation will prove useful and can be used as evidence. Quantity surveyors communicate directly with the property manager or tenant so that least interruption is caused to the tenant. They have expertise in preparing tax depreciation schedules and other essential reports to keep you at ease.

5. Will you be able to claim depreciation if the property is renovated?

Yes, however, you must know exactly how much you spent on renovations. In case the earlier owner carried out the renovations, you can still claim depreciation. If the cost of renovation is not known, the expert quantity surveyor will make the estimate.

Final Thoughts:

You can find some of the best-qualified quantity surveyors in Australia at Deppro. They will offer their services at cost effective prices and will not create a hole in your pocket. You can also find a Deppro contact number online. Get in Touch with the depreciation specialists today.

How Much Will Your Depreciation Schedule Cost?

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Every asset you own goes down in value over a period of time. In real terms, this is because of wear and tear due to regular usage. In accounting and financial terms, this reduction in value every year is expressed as a percentage. The concept is broadly similar across the world. But the rules, implementation, and even percentages might vary a bit according to the country and asset category. For this post, let us consider the impact of depreciation on an investment property in Australia. Let us also consider what could be the likely costs involved in calculating Australian tax depreciation on the property.

Tax Implications of Property Depreciation in Australia

The ATO (Australian Taxation Office) has laid down very clear rules regarding depreciation of the value of an investment property. The annual reduction in the value of fixed as well as removable assets of a property would need to be listed in a depreciation schedule. According to this schedule, a property owner can claim deductions on the tax payable by him or her. That is why it is very important to get the schedule prepared by a qualified and experienced professional. Most good consulting companies have experienced quantity surveyors on their rolls. They take accurate measurements and make the schedule exactly as per the recommendations of the ATO. This ensures that a property owned is not taxed more or less than he should be.

Cost Implications of Preparing a Depreciation Schedule

Like everything else in life, there are several ways of going about this. One can even choose to make the schedule on one’s own. This way the depreciation for property would be calculated at zero cost. But this would run the risk of a major error. The error could turn out to be costly in the future. The second option is to employ a company which promises to charge less. You could get the job done cheaply, but there would be a catch. There would be several important aspects not covered under the charges. These would either reduce your tax savings later or cost you more in additional charges. Either way, you end up paying more than you save. So what is the best option?

How Much Will a Good Depreciation Schedule Cost?

The best way of deciding or understanding this is to first list down everything which you necessarily need. For example, do you need an exclusive report for your property? Or would you be okay with pooling the cost with other owners of the contiguous property? Should your report contain inputs from other relevant parties? Would the formal inspection report be part of your tax submission? Based on these points, it could cost as low as $175 plus GST. And it might go up to $1000 plus GST for a comprehensive report.

Conclusion:

A good Deppro depreciation report might cost you more than other cheaper alternatives, but it will help you save more in the long run. You will not only pay less tax, but you will also be protected from needless taxation that is deductible legally.

How Depreciation Works for a New Investment Property

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When you buy or own an investment property, you are responsible for the maintenance and upkeep. But the property also becomes part of your assets, and therefore it gets linked to your tax liability, and therefore you should consider it as part of your investment property calculator.

What is Depreciation?

As per the principles of accounting, any asset loses value with time, and every year its value decreases, this is called depreciation. We see this most commonly when the value of an automobile is calculated by the insurance company every year before calculating the annual premium to be paid for its insurance. The value of the car is reduced every year, and the new premium is calculated as a percentage of this reduced value, not on the basis of its purchase price.

Benefits of Depreciation

The ATO allows property owners to get the benefits of the depreciation that their property suffers. This depreciation on investment property ATO can actually be claimed as a tax deduction while submitting the tax returns. For this, a process has been laid down by ATO, which requires the homeowner to employ the services of qualified professionals.

The Two Types of Calculating Property Depreciation

A building can have two aspects of the calculation of its tax depreciation investment property.

  • The first mode of the calculation of depreciation is on capital works. It includes all the expenses made on the construction of the building. This depreciation can be claimed over a period of forty years. This period has been decided based on the average expected lifespan of a newly constructed investment property.
  • The second mode of property depreciation is based on the value of the assets added to the building. This would include things like upholstery, furniture, electrical, and utility gadgets, etc. The list provided by ATO also lists the expected lifespan of each item. For example, a carpet is expected to last 10 years, while a kitchen stove can be expected to last two years more.

A Brief Process for Claiming Property Depreciation

The tax declaration would need to contain a detailed schedule for you to be able to claim both the types of depreciation listed above. A certified quantity surveyor would be required. This is because actual measurements and enumeration of every small and big component would be needed. Once the list is ready, the calculations can begin.

Based on the age of each component, and the rate laid down by the ATO, the total depreciation amount is calculated. Once the amount is final, then the amount of tax deduction applicable can be calculated.

Conclusion:

Many homeowners are not aware of the depreciation rules. If these rules are properly utilized, a homeowner won’t need to pay more tax than needed. A proper tax depreciation schedule for rental property can also prevent tax deduction being claimed twice for the same component. All that is needed is to utilize the services of a good consultant. The consulting company and its team of quantity surveyors will help you claim the right tax breaks.

Depreciation and Your Investment Property

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When a person buys an investment property, the intention is to generate an additional revenue stream from the rentals. But the process of looking for a good tenant and setting them up is not that easy. Then there is the issue of regular or ad hoc maintenance expenses, which eat away at the rental income. On top of that, there is the matter of paying taxes on the property and its income.

The Australian tax rules have made it possible for homeowners to get some relief from the taxes they need to pay for their property and its income. The rules regarding depreciation residential rental property provide for a reduction on tax on account of the depreciation of the value of the property.

There are two ways in which the deduction can be calculated. It could be either on the capital works or on plant and equipment. It is required that a complete tax depreciation schedule for rental property is created by the owner. This is a specialized job for which experts need to be brought in.

There are several companies which offer this kind of service. They employ qualified quantity surveyors who are trained to create this kind of report. It requires detailed measurements and counting of each and every small and big element on the property. Based on those data points, the complete rental property depreciation report is prepared. This is then used in and submitted along with the tax returns of the property owner.

There are some things to be kept in mind when claiming tax depreciation on investment properties. Here are some of them:

  1. There are cutoff dates for properties laid down. For commercial properties, the commencement date is 20th of July, 1982. For residential properties, the date is 15th of September 1987.
  2. For plant and equipment assets, the effective lives of each element would be taken into consideration. ATO has laid down a detailed list for this, and the tax returns would be filed accordingly.
  3. The individual effective life would also depend on the type of property where the plant and equipment asset has been used.
  4. House owners need to keep in mind that the depreciation rules would only apply if the property is not being occupied by the owners. Therefore, it has to be a rental or investment property for the depreciation rules to be allowable.
  5. The above rule can be relaxed if the property is purchased and owned by a trust or a company instead of an individual. In such cases, the owner (individual) can move in as a tenant of the trust and claim depreciation.

There are several good companies who can help you create the depreciation report for your property in line with the current regulations. They have teams of qualified technical specialists who would help prepare the depreciation reports and file the tax returns accurately.