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How to Claim Depreciation on Investment Property: Factors to Consider

If you are a property investor, tax time could be little confusing to you. If you are looking for the right advice to understand how to Claim Depreciation on Investment Property to reduce your tax liability reasonably, here are some tips to help you:

1. Figure Out What You Claim:

A variety of expense-related deductions are entitled to claim by investors including repairs, interest, fees, depreciation, and maintenance. A property depreciation report is a significant aspect to consider for the depreciation for tax purposes.

Typical depreciation schedules for rental property maintain all the deductions pertaining to capital works such as floors, roof, wall, windows, doors, etc inclusive of removable plant & equipment that belong to such a building. It also includes various appliances, blinds, carpets, etc.

2. Depreciation Rules:

The depreciation for tax purposes is available for the legal owners. In case of hire and purchase agreements, notional sales of goods are considered and the legal owner can claim the deduction. Similarly, in the case of joint ownership, no individual partner can claim the entire depreciation.

These deductions are limited to the extent to which you use your rental property for generating income. If you are using the 50% of the property, you cannot claim 100% depreciation for that particular year.

3. Age of the Property:

Most of the investors mistakenly believe that their property is too old to claim depreciation benefits. The age of a property does significantly impact on the capital work deductions but the depreciation claimed on the plant & equipment is regardless of the property’s age and can save a considerable tax amount.

4.  Work From Home Also Allows a Depreciation Deduction:

Are you operating from home? If yes, you are also entitled to claim for the portion of property including the involved plant & equipment for the purpose of depreciation claims. A quantity surveyor can guide you in differentiating all the items which can be included in property depreciation report.

5. Depreciation for Tax Purposes Can Be Claimed for Partial Financial Years:

Even if you have purchased any rental property towards the end of the financial year, you can include it in the property depreciation report on a partial basis. If a large sum of money is involved in any such investment, it will lead to boost your cash flow significantly.

6. Crosscheck Your Tax Return:

If you are not acquiring the adequate knowledge on how to Claim Depreciation on Investment Property, you are prone to make errors pertaining to asset classification and calculation of depreciation. The plant & equipment depreciation rate is higher than capital works. So, if you maintain depreciation schedules for rental property at the same rate for both the classifications, you are tending to lose a significant depreciation claim.

7. Consider a Qualified Quantity Surveyor:

The selected professional specializes in helping with depreciation schedules for rental property is considered as the Qualified Quantity Surveyor under Tax Ruling 97/25. If you are not sure about how to Claim Depreciation on Investment Property, you can refer such professionals to seek an extended guidance. You can check with your accountant for any such referral to find an appropriate surveyor. Remember, not all the quantity surveyor possess specialization in building depreciation.

Conclusion:

It is important to maximize your depreciation claims in order to ensure a higher return on investment on your rental property. You can also be assured a money-back guarantee on the services offered by the reputed quantity surveyor. But, most of these professionals also charge a premium service fee.

If you are an amateur investor, it is recommended to seek an experienced quantity surveyor to maintain your depreciation schedules for rental property more accurately and efficiently.

A Beginners Guide to Rental Property Depreciation: All you should know!

In order to minimize your tax liability, claiming the depreciation on a rental property is imperative. It also significantly improves your cash flow. It is important to calculate precisely on the amount of depreciation tax deduction on rental property. While a little depreciation will enhance your tax liability, any excessive claim can cover you under the preview of ‘Fraud’.

Here is a comprehensive beginner’s guide to rental Property depreciation:

Depreciation – an Overview:

Depreciation technically refers to the decrease in the value of an asset over a period of time. Any tangible asset has a value which declines substantially over its useful life. The owner of the assets can deduct the cost of these tangible assets as an expense to claim the tax deduction.

Depreciation is a non-cash transaction which helps in improving the cash flows by the way of reducing the tax liability. Any rental property generates a certain amount of income which is liable to tax. By claiming the depreciation tax deduction on rental property, this liability can be reduced.

For investment property depreciation, there are two broad asset classifications:

  • Plant & Equipment: Any item used in a building including dishwashers, light fittings, curtains, carpets etc. But the garden plants are not covered in this category.
  • Building: The cost involved in the construction of the building for concrete or brickwork.

ATO Tax Depreciation Schedule – An Overview:

A Depreciation report needs to be maintained in order to claim a depreciation tax deduction on rental property. Tax depreciation reports state the entire claimable amount under depreciation to be considered for tax purposes. ATO only allows for a backdate depreciation of up to 2 years.

Hence, it is recommended to start claiming depreciation at the earliest possible time. It is worth noting that this 2-year limit can be contented by a savvy accountant and on the discretion of an ATO commissioner.

To include the rental depreciation:

  • Rental money must be included under the income.
  • Any insurance payout on the rental property must also be included under the rental income
  • Any booking or letting fee should also be considered as rental income.
  • Any reimbursement received for deductible expenditure to be included under the rental income.
  • In the case of co-tenants, depreciation can be claimed only to the extent of legal interest in the property.

Things to Know About Depreciation Tax Deduction on Rental Property:

In order to claim a correct depreciation tax deduction, you must know the following details:

Date of the Beginning of Construction:

When the construction of the property begins, the depreciation rate percentages can be counted from the effect. If the property is constructed in different time frames, the depreciation can be claimed according to different times.

The percentage of depreciation approves the time for which depreciation can be claimed. Say, if you are claiming a depreciation of 5%, you can claim it for the subsequent 20 years. Similarly, if you claim depreciation for 4%, you can claim it for 25 years.

Date of the End of Construction:

The depreciation tax deduction on rental property can be claimed after considering the date of the end of depreciation. This is a very important date to be known and considered for the depreciation deduction.

Cost of Construction Involved:

The actual cost of construction exclusive of the cost of property purchased as well as the value of the property is considered as the cost of construction liable for a rental property tax deduction. It can also be estimated, in case the owner is not sure about such cost. Such estimation can be done on the basis of the type of construction say residential house or apartment or any commercial property as well as the party involved in such construction i.e. owner, builder or any developer.

With this beginners guide to rental property depreciation, you can suitably save a considerable amount on your tax liability.

Tips to Get More Out Of Your Depreciation Claim

It’s everyone’s dream to own their very own property. It not only makes you feel good, but it brings rental or investment income too. But like everything, the value of a property decreases over time. This has nothing to do with the market value or the cost of raw materials. It is an economic principle called depreciation. Every year the components that make up your property become less valuable. Australian tax laws lay down a process for claiming depreciation on a rental property. This ensures that you are entitled to tax deductions. The extent of those deductions depends on the amount of depreciation.

Steps Involved in Claiming Depreciation on a Rental Property

The first thing to do is to assess the property. Every single asset on the property needs to be properly evaluated. You can use the Deppro contact number to get in touch with a reputable company for your depreciation claims. They will divide your assets into the correct categories and then they will allocate the correct depreciation rates as per ATO rules. Based on this, your depreciation schedule will be prepared, thus, the correct tax return can be filed.

The Correct Tax Returns

You might have often wondered can you claim depreciation on a rental property? The answer is yes. Depreciation can be claimed during filing tax returns. The process for claiming depreciation on a rental property is quite simple. But it might become tedious if you do it yourself. A good company with good quantity surveyors can make the process much easier. A team of expert quantity surveyors can make the task of claiming depreciation on a rental property extremely simple.

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.

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!

Working as a quantity surveyor; their job in 4 points

“What do you do?”

“I’m a quantity surveyor.”

It’s common for blank stares to follow this statement. Quantity surveyors don’t get as much of the limelight as accountants, engineers, or architects but their job is a crucial part of any investor’s world. Here’s 10 more things to know about them.

 

  • They’re well educated

There’s a lot of work that goes into becoming a quantity surveyor, starting with going to university. For example, there’s a Bachelor’s of Urban Development with Honours (Quantity Surveying and Cost Engineering) from QUT. This course involves majors like urban planning, accountancy, and applied economics. There’s more to working as a quantity surveying than just good maths.

  • They’re quite worldly

This job allows people to travel. The construction industry needs quantity surveyors far and wide, especially during the initial stages of a project. Those who work for a company with offices abroad will find themselves on worksites from Hong Kong to Dubai. A quantity surveyor working for Deppro visits both regional and capital cities all around Australia at scheduled times of the year. So they definitely rack up the frequent flier miles.

Perks of the job? Qantas Club access!

 

  • Part of the group

To legally work as a QS, you need to become a member of the Australian Institute of Quantity Surveyors. This group represents all surveyors across Australia. Members are bound by a code of conduct to operate at a high standard. They have access to further education, professional executive events, and other resources.

Another institute both individuals and companies must register with is the Australian Tax Practitioners Board. This is especially the case when the quantity surveyor is working on calculating property depreciation. This way the tax depreciation schedule is fully ATO compliant.

 

  • More money, less tax

A quantity surveyor is also known as a cost estimator. Their job is to save money on the build without compromising quality. They’ll complete their job before the developers break ground and consult through the project.

Those who work on calculating depreciation, though, start their work when the buyer settles the home. After a walkthrough of the property, taking photographs, making notes, and inspecting plans, the quantity surveyor writes up a depreciation schedule. This sets out the lifespan of the fixtures in the property and how much value they’ll lose over time.

The great debate | Buy old property or build new?

Are you holding out for a heritage home? Or would you rather build a house that pays homage to era’s past with heritage ‘features’? We’ve gathered articles around the web that compare the pros and cons of buying vs. building for investment purposes.

 

Buying a house vs. building a house by CanStar

property

Banking, insurance, and investing are all part of CanStar’s services. It’s natural they’d write something about property investment and the associated costs. They look at both sides equally, listing the pros and cons of each. This is frustrating to those who want a simple ‘yes or no’ answer but their advice is not to be taken for granted

Building your home vs. buying: What to know before you decide by Domain

Domain interviewed several experts in the property field about this topic. A buyer’s agent, realtor, builder, and lecturer all have their say. Ultimately though? It depends on  the investor and their priorities.

 

Building your own Investment Property from Scratch by Your Investment Property

This article is written by Lindy Lear, a successful investor who built a portfolio of eight properties in three years. She takes readers through the process of building a home for investment purposes. This starts with choosing a property and ends with the amount of the (many) tax benefits the reader can claim if they follow through on their plans.

 

The big match up: buying old or buying new by Your Investment Property

Your Investment Property pits an investment strategist against a new homes developer in the debate. Both sides have valid points, some of which you mightn’t have thought of.

 

Is Buying A House or Building a Home a Better Investment? By Home Together

 

Home Together asks the questions the investor’s need to answer so they can decide what’s best for them. There’s even a downloadable checklist included!

 

Need more advice? Read on…

  1. 8 amazing home builds and overhauls from around the web to inspire your investment property renovation
  2. 4 articles that give investors a reality check about the property market, worldwide
  3. What NOT to do before and after getting your property report

6 signs of an amazing property manager

When you purchase an investment property you can’t shoulder the burden of managing it yourself. Investors regularly pass this duty on to their property managers. Of course there’s a few ‘unreputable’ characters out there, but the professionals are worth their weight in gold (or rental profits!).

When you’re comparing agencies and individuals, make sure you’re noting down these five points:

 

Their vacancy rates
As in, they’re minimal. Good property management equals low vacancy rates. Your property won’t lack for tenants because the manager has done their job properly.

Senior management aren’t afraid to be hand-on with the work and that’s another reason why some firms are so successful. The more experienced people are still in the game, doing their best for their clients.

 

They have a network of services
Yes, the manager’s main job is to MAINTAIN your properties and make sure the rent is getting paid. But they should offer more than just this basic service. A good firm will also check the market to make sure rent is fair. They’ll calculate invoices for you. There’s a network of trades on speed-dial when something has to get repaired. In short, you don’t have to lift a finger, because your property manager should be taking on most of the responsibility.

Got a property problem? They have someone to fix it.

The door’s always open
Irregular communication is a red flag. Property managers must call their clients regularly with updates about the homes and spaces they’re responsible for. It doesn’t matter if the news is bad. Transparency is key. Plus, when the client calls, they’ll always answer unless there’s an emergency.

 

They come highly recommended
If an investor is happy with their team, of course they’ll spread the word and recommend them. Investors reach out to each other regularly for advice about who to hire and what market actions to take.

If you know an investor with a good portfolio who seems to be sailing along with a big smile on their face, ask them who manages their properties. Alternatively, you can do a Google search and look at recent My Business reviews.

 

Everyone’s happy
If people in the property management firm look like they’d rather be somewhere else, it’s best to walk right out the door again and not take the meeting. If staff are happy and content in their job, they’re going to do their best for YOU too.

 

Genuinely happy staff will care more about your investments

 

The firm is a well-oiled machine
Your property manager should have a regimented schedule that encompasses everything they do. Inspections are a regular occurrence alongside rent payments and client meetings.

 

Liked this? We have more advice to share…

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Depreciation assistance for real estate professionals

To make a sale, real estate agents need to rely on cold hard facts. Their clients need assurances that the property they’re seeing is the best investment for them. It doesn’t matter if the property is a commercial building or a home; if there’s benefits available, it’s music to anyone’s ears.

 

There’s two classes in a depreciation schedule: capital works, and plant & equipment. Capital works are things the ATO considers permanently fixed to the building (bricks, mortar, wiring etc). Plant and equipment is a different matter. Items in this category are things that can easily be removed from the building such as carpet, furniture, and even the smoke alarms. Thanks to age and general wear, the items in both categories will lose value over time. This creates an amount that can get claimed on a tax return every year.

 

Having access to ATO-approved depreciation schedules almost on-demand is a great asset for real estate agents and property managers. They can present tangible tax benefits to their clients during a sit-down meeting or even during a property inspection.

 

Real estate agents know that their clients are looking for the best deal. Presenting the depreciation schedule is a huge advantage in helping them close a sale. Depreciation is essentially the same as savings, or money back from a PAYG statement. It shows the property’s earning potential and can be the difference between a negative-geared asset and turning a profit every week.

 

Property managers will also benefit from professional depreciation assistance. If their client is unsure of the tax breaks their property can provide, managers can look up a deprecation report just as easily as a real estate agent. Oftentimes the investor doesn’t know they can order the depreciation report themselves and turns to their manager for help.

 

The benefits that real estate agents and property managers can reap from depreciation assistance are numerous. They don’t just build trust with their client by providing the basis for sound advice. They’ll net a sale and gain a reputation for handling properties with amazing tax benefits.

FAQs on capital gains tax

Capital gains tax is one of the complicated terms in the investment world. It’s essential, though, to understand it when it’s time to sell your investment property. We break down some of the frequently asked questions about capital gains tax here.

 

  • What does it mean?

Capital gain means you sell your asset for a profit. This includes investment properties and shares. Selling an asset for a capital loss is when you lose money on that asset come sale time.

 

  • What’s excluded from CGT?

Capital gains tax only applies to your assets, not your personal property. Your personal home, car, and collectables are excluded from taxation. According to the ATO website, depreciating items don’t count in calculating capital gains tax. This is usually plant & equipment in your rental property portfolio. Also excluded are:

  • Injury compensation
  • Personal assets like boats and furniture
  • Anything bought before September 20th, 1985 (pre-CGT)
  • Winnings or losses from gambling

 

  • Do rates vary?

That depends if you’re an individual or a business. The rate paid to you is the same as that of your income tax rate the year of your return. The way capital gains tax is calculated remains the same. The most common method is subtracting your cost base from the sale price of your property.

 

The cost base is how much you bought the property for, plus any associated expenses. This includes stamp duty, plus legal and incidental costs. You also must subtract depreciating items. Finder.com visualising the calculations like this:
capital gains tax

 

  • Can I get a discount on my capital gains tax?

Yes, you can get a discount on your tax, but only if you’ve held the asset for more than 12 months. You can also claim a discount for the amount of time the asset was used for personal reasons.

 

If you’re not sure about your capital gains tax, there’s free calculators available from investment websites like Your Investment Property.