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How to Maximise Depreciation for Investment Property

One can consider depreciation of a property as a simple deduction on the actual worth owing to the ageing and wear and tear of the property that one owns. It can be termed as the deduction that results out of overtime assets. When it comes to investment, even the most experienced investor tends to overlook the benefits of a depreciation report. While there are accountants for a majority of tasks related to the calculation of taxes, there is hardly anyone who pays attention to depreciation schedule for investment property.

Property Tax Depreciation

The value of a building goes down as it gets older. This is because, in the majority of cases, such buildings show the signs of wear and tear. According to Australian Taxation laws, and the Australian Taxation Office (ATO) in particular, a property owner can claim depreciation if they generate income from their property.

Tips for Property Tax Depreciation

While your accountant can take care of all the aspects related to your business, they are likely to miss out on a depreciation schedule for investment property. After all, it is a payment which the administration owes to you. Though all accountants never overlook the matter, a majority of them prefer to have it handy while preparing your tax return. So, it is a good idea to reach out to a quantity surveyor for an assessment of your property.

Do Older Properties Offer a Good Depreciation Value?

Contrary to the notion that older properties have no depreciation value, the truth is that every property has some sort of depreciation value if it is used by its owner to generate some kind of income. Though the depreciation of a new property is much more compared to an older one, the latter can also carry a greater value than by virtue of updates and renovations.

Why Attach Importance to Tax Depreciation for Your Property?

On an average, about 80% of investors do not mind promoting the depreciation deductions. If you happen to be one of them, it is high time you made efforts to maximise it as far as possible. What’s more, the ATO has a provision wherein it allows taxpayers to go back to two previous tax returns and amend them to claim deductions. So, if you haven’t been claiming depreciation on your property, utilise it to your fullest advantage.

What to Remember for a Higher Yield on Investment Property?

An important thing to remember in connection with depreciation is that a majority of homeowners forget to take renovation into account while filing their tax returns. With every renovation, there is also the possibility of the existing assets being replaced by something new. And this makes for a cogent reason to qualify for depreciation. The ATO provides for claiming the remnant of value for depreciation in such cases.

Never miss the opportunity of having a quantity surveyor inspect your property in accordance with investment property depreciation rules. Make sure that they document each and everything as the ATO is likely to take their report into account. Once the renovation is done, ensure that the same surveyor takes a look at the property and notes down the details of it to determine the assets that have been removed or replaced.

Final Thoughts:

As a standard rule, remember to only get in an experienced quantity surveyor when you plan to get your depreciation schedule done. While there are other low-cost DIY options that you can explore as well, you may eventually end up spending more. Furthermore, the remuneration of a quantity surveyor, even as it proves to be more than that of your liking, is 100% tax deductible. Thus, even if you pay them a higher fee, it wouldn’t hurt you as you would get it back.

How Depreciation Works for a New Investment Property

The value of everything diminishes over time. This holds true for everything you buy or own. So if you buy a television, then its value will diminish by a certain amount or percentage every year. This is called depreciation. The extent of depreciation depends on the expected life of the television. So if you bought it for $800 and you expect it to function for 4 years, then each year the depreciation is $200. When it comes to buying, owning, and selling real estate, the principle of depreciation works in the same way. The process for claiming depreciation on investment property must be clearly understood to ensure that unnecessary tax is not paid. The tax depreciation investment property rules are different for old (already existing) property and new property. Let us examine the various aspects of depreciation on a new investment property.

Types of Tax Depreciation Investment Property

Depending on which part of the property is being assessed, there could be two categories of assets for which depreciation can be claimed, as per the guidelines of the investment property depreciation schedule ATO. The first is the capital works assets. This refers to the actual structure which is immovable in nature. It includes the cost of the walls and roof of the house as well. These assets are expected to last for much longer. For example, the depreciation of a building is expected to take place over a period of 40 years, so each year the depreciation would be only 2.5%. The second category is referred to as the plant and machinery assets. These are other assets which are added on to the house, and which have much shorter life spans. For example, the curtains, air conditioners, computers etc. would all be calculated as plant and machinery assets. For the calculation of tax depreciation investment property, the ATO has made a detailed list of expected lifespans of all the possible assets in a house.

Ways of calculating depreciation

There are usually two ways in which depreciation can be calculated. We already discussed how depreciation means the gradual reduction of the value of an asset over its service life till it becomes zero. The two ways of calculating depreciation assume different velocities of this reduction of value. The prime cost method assumes that the depreciation takes place in equal amounts every year. On the other hand, the diminishing value method assumes that the drop in value is greater in the first few years and then flattens out.

How to Create a Depreciation Schedule

We have already discussed the two types of assets for calculating depreciation. We also saw the two different ways of calculating depreciation. But beyond these two things, there are other factors that need to be taken into account for calculating a depreciation schedule. Based on this depreciation schedule, the tax write-offs and allowances would be calculated by the ATO. That is why it is very important that the depreciation schedule is perfectly created so that you do not lose out on any allowable deductions, nor do you end up paying extra tax. That is why it is important that you use the services of a good tax consulting agency. A good agency would have your property evaluated by a qualified quantity surveyor, who would list down every small and big asset on your property. Based on the report provided, your tax returns can be accurately filed.

The rules governing existing and new investment properties in Australia are different. If you want to get the best benefits from your tax depreciation investment property, you need to use the services of a dependable tax consulting agency.

Why You Need a Quantity Surveyor for Property Depreciation Schedules

A residential or commercial property construction is never easy. During construction, a record needs to be maintained for every expense. This could include materials, labor, registrations and other costs. A quantity surveyor keeps track of the construction costs. But that is not his only job. He also monitors the costs so that they stay within budget. The report of the quantity surveyor also helps create an accurate property depreciation schedule. That, in turn, would help claim the depreciation tax benefit and also sell the property at a fair rate.

Compliance Rule for a Property Depreciation Schedule

It is not enough for the property owner or the contractor to keep track of quantities and costs. That won’t be admissible by law in a property depreciation schedule. The tax claim must have a quantity survey done by a registered quantity surveyor. It can’t be done by a chartered accountant or by the owner himself. The property owner must use the services of an enlisted quantity surveyor for tax depreciation investment property.

Benefits of Quantity Survey

One benefit of using a registered quantity surveyor is the compliance to regulations. But there are more. You would also be able to get the most accurate measurements. They would be aware of the latest regulations and prepare reports accordingly. For example, did you know that there was a change in tax rules in 2017? Has this had an impact on tax depreciation schedule for rental property? A licensed surveyor would help you get the accurate tax allowances as well.

The Process of Completing a Quantity Survey

A good quantity surveyor would involve several site visits and accurate calculations. The surveyor would carry out physical visits several times. This would help him to take all necessary measurements. Once that’s done, the current regulations would help to make all the calculations.

An accurate property depreciation schedule would need several inputs. A registered quantity surveyor would help in making an accurate assessment of depreciation.

What Is a Rental Property Depreciation Schedule?

When you own investment property or rental property, the value decreases every year due to depreciation. But you can also claim tax allowances on the depreciated amounts every year. A rental property depreciation schedule can help you understand the amounts you are eligible to claim on your tax returns every year.

ATO Compliant Depreciation

The Australian Tax Office (ATO) fixes the rates of depreciation applicable for rental and investment property. The rental home returns need to be filed in accordance to these ATO depreciation rates and must be compliant with other ATO guidelines as well. Only an ATO compliant rental property depreciation schedule should be used for filing tax returns. There have been some changes to the tax and depreciation rules in 2017, and the property owner should be aware of what depreciation allowance is permissible on each of the assets on the property. The rules for Capital Works depreciation and Plant and Equipment depreciation as laid down by ATO should be followed.

Get Rental Property Depreciation Schedule from Experts

You can easily make your tax returns compliant by using the services of a reputable and trustworthy company. A Deppro depreciation schedule would be created with the help of registered and knowledgeable quantity surveyors. Each element of your property would be divided into the correct categories and depreciation rates applied accordingly. The quantity surveyor would take accurate measurements of all the construction elements and other assets of the property. Based on those numbers, the annual depreciation would be calculated. A cumulative calculation of subsequent years should also be provided.

If you wish to file accurate tax returns and not miss out on any allowances you are eligible for, you need to first get a rental property depreciation schedule prepared with the help of a registered quantity surveyor.

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 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!

Depreciation rules for your rental property | Articles from around the web

Confused about depreciation rules for your rental property? Did you even know there were rules in the first place? Depreciation, tax and claims processes are large and confusing mazes, so we gathered articles from around the web that make things crystal clear.

 

The One Depreciation Law Change You Absolutely Need To Know by Deppro

Investors who hold both commercial and residential properties were thrown for a loop in May 2017. Starting from July, the beginning of the new financial year, the Federal Budget came into effect with new depreciation rules. These rules affect what owners can claim which in turn claims how much they get back over time.

 

How Rental Property Depreciation Works by Investopedia

Investopedia is a useful website both novices and experts can refer to. The page linked above goes into the basics of depreciation such as how it’s calculated and when it ‘begins’. Hint: it’s not actually after the settlement date.

Make sure you’re square before the tenants move in

 

Top 10 tips to help rental property owners avoid common tax mistakes by the ATO

Rental property owners must navigate complicated tax rules. Not navigating them correctly leads to costly penalties. To help the common Australian investor, the ATO made a top 10 list of tax mistakes to avoid. These include what type of expenses to claim, as well as the right portion of costs and how to keep the right records.

If you need a printout to have on your nightstand, there’s a PDF available to download.

 

Claiming Depreciation on Investment Property: The property investor’s complicated friend by Investor Assist

This page is a one-stop-shop for investors wanting to know more about the process. There’s an uncomplicated list of depreciation rules, definitions and examples of what assets you can claim.

The page also describes the methods used to calculate depreciation costs, prime cost vs. diminishing value. But the quantity surveyor handles these calculations, not the investor. Once the values are worked out they go into the depreciation report. This crucial investment tool is recommended at the end of the page as the final step of claiming depreciation on an investment property.

Need more advice? Read these:

  1. Rentvesting: a forgotten way to own and rent at the same time
  2. Behave like a 1% investor with these tips

A beginner’s guide to a depreciation schedule

A depreciation schedule is a necessary tool that every property investor or business owner must have if they want to pay less tax and recover debt faster. It has been said that in some circles up to 80% of investors don’t know that they can depreciate their investment property, some don’t even understand what depreciation is.

 

Claiming the property and the items inside it on your tax return will give you a higher return, but not straight away. Items depreciate over time, and their depreciation costs will increase the longer an investor owns them because they’re given a ‘lifespan’ for their usefulness. Any item, from the fire alarm in the ceiling to the carpet on the floor, depreciates in value. Items under $300 are instant write-offs.

 

The depreciation schedule

It always contains two categories: capital works, and plant and equipment. Capital works are part of the property itself and any renovations done to the structure. Work done to the kitchen, the carpets, and even the patio gets included in capital works depreciation.

 

The plant and equipment category is comprised of items that can easily be moved out of the home or commercial premises. Whitegoods, furniture, electricals, and even rubbish bins are included. This is the category that some investors have trouble with because they don’t know they can even claim rubbish bins as an instant write-off.

 

The depreciation calculations, though, rarely get done by the investor who owns the property; this is a job for a quantity surveyor. After the property settlement, the new owners must get a surveyor in as soon as possible so they can make an accurate assessment. They’re the ones who write up the depreciation schedule. They calculate the value of the items in the home and how they’ll decline in value over time. Depreciation schedules last forty years, starting from the settlement date.

 

Investors don’t have to worry about working the depreciation schedule into their tax return, either. Once the quantity surveyor has completed their assessment, the investor’s accountant can handle the rest. They use the schedule as a guide to assist in making an accurate return. They’ll do their best to make sure their client pays as little tax, and gets the best refund, possible.

 

Business owners without a depreciation schedule are missing out hundreds of thousands of dollars over the time they own a property. Contractors like Deppro come to assess what their clients can claim, and work hard to ensure they get the maximum amount back.

How your depreciation schedule give you bragging rights

Having a depreciation schedule isn’t anyone’s idea of a ‘must-have accessory’ but it pays off in more ways than one. Seasoned investors and business owners with several properties under their belts know well the bragging rights they’re afforded when they’ve got the depreciation schedule in their hands.

 

It’s less work
Tax time is the bane of most people’s existence . Organising account information, making sure expenses are correct and the like is a pain if you’re not organised. When you own investment properties, or brick-and-mortar stores, the amount of work increases substantially.

This is where the depreciation report comes in. After the quantity surveyor does their walk through and the company mails you the report, a large bulk of the tax reporting for those properties is complete. You don’t have to triple-check bills or receipts for a long time unless you do renovations.

 

It lasts for a LONG time
Ordering a depreciation report isn’t an annual task. It’s valid for the lifetime of the property. Companies like Deppro create reports that last forty years, so you’re set for life, or at least as long as you have the homes/shops in your portfolio.

This means, though, you must act quickly. As soon as you settle the deal with the real estate agent, get the depreciation experts in to assess. They prefer to see everything in the condition you bought it to make an accurate report. If the previous owners made renovations, then that’s a bonus as you’re eligible to claim their work in the report!

 

More (money) for you
The biggest bragging right of all? You’re paying less tax! Because you got the depreciation report done and passed off to your accountant in record time, there’s more money flowing back to you come tax time.

Fun fact: the fee for ordering the depreciation schedule is deductible.

A depreciation report isn’t glamorous, but its benefits are worth their weight in the size of your tax return. You can feel a little smug having less work on your plate organising expenses. Your accountant has the report, and you have the time to run your business.