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Why You Need a Depreciation Schedule for Your Investment Property

Savvy investors, nowadays, indulge in property investment with the prospect of re-selling the property at higher prices. While this investment decision is highly fruitful, a little know-how of the field can help in making the most of the opportunity.

Depreciation on property is one such aspect that has to be taken into consideration. With the know-how of property depreciation, information on tax depreciation schedules is also vital.

What is a Tax Depreciation Schedule?

Depreciation on a property comes from the fact that as a property ages, its components may suffer from wear and tear. The test of time inflicted upon the property leads to a decline in value. Tax Office provides claim to investors against this depreciation.

In order to claim depreciation from the Tax Office, investors require preparation of investment property depreciation schedule also known as a tax depreciation schedule. The preparation of the schedule should be done by a qualified surveyor, who will make a list of all the depreciable items in the property.

The inclusions in the depreciation schedule will be: depreciation on building allowance; depreciation on equipment; on plant; and, precise calculation of each depreciable item. Depreciation on investment property ATO approval is a must. For which you need professional help to draft it for you.

Preparing a Depreciation Schedule

Property depreciation schedule 80 reflects the numerous benefits of having your property’s depreciation schedule developed, which are as follows:

  1. Creation of tax depreciation schedules on a rental property allows the owner of the property to claim renovations done by the previous owner. The owner can also add any new improvement made on the house into the existing schedule.
  2. Beside the approval of claim, the preparation of schedules allows the owner to weigh their subsequent property investments. Investment property calculator can help them to find out the most lucrative properties in terms of depreciation benefits.
  3. Preparation of Property depreciation schedule 80 allows the owner to claim depreciation on building allowance. This means that the owner will get tax benefits upon the building’s structure like the brickwork, roof and timber work.
  4. Depreciation on plant and equipment can become highly lucrative with the aid of depreciation schedules. This is because it covers those items that can be detached from the investment property. Such items cover as high as 35% of the complete cost of a residential building
  5. The benefits of tax depreciation schedules also include improvement of cash flow. This is owing to the reduction of taxable income. Wealth creation gets much easier when the money has been freed up. These further properties can of course be weighed using Investment property calculator.

Wrapping-Up:

It’s the owner’s responsibility to both deduct the depreciating value upon their property as well to claim it. It is not the ATO’s job to remind them. Depreciation on investment property ATO can be a game-changer for an owner’s investment opportunities. Also, property owners should not forget to use the aid of a qualified quantity surveyor for creation of the schedule on their investment property like Deppro QLD.

 

 

How Rental Property Depreciation Works

Investment in rental property has emerged a beneficial financial decision. A rental property can be a stable source of earning for beginners. One can reap tax benefits as well on the rental property benefits. You can cut the rental expenditures from the earning of rental income thus bringing down your tax liability. Meanwhile, the other important tax deduction meant for depreciation works in a different way.  Depreciation can be defined as a process which is used for deducting the expenditure of purchasing and renovating a rental property. Instead of taking a single deduction in the year you buy or renovate the property, depreciation distributes deduction throughout the life of the property. Given below are the factors how depreciation for residential rental property works:

1. Which Property is Depreciable?

You must find out first which property is depreciable. As per the rules of IRS, you can depreciate the property if:

  • You are the owner of the property even if it is liable to a debt.
  • You are using it for any income-generating act or business purpose.
  • Property has got a determined useful life and loses its worth as a result of natural factors.
  • The property may last for more than a year.

2. When Will Depreciation Start?

When a property falls in the category of service or is ready to use as a rental property, you can apply depreciation deductions. You may continue to depreciate the property until any one of the conditions mentioned below are met:

  • If you have deducted all the cost or other bases in the concerned property
  • You leave the property from service even if you could not recover the entire cost or other bases. The property will be retired from service the moment it is not being used as an income-generating property. When you destroy it, convert it or leave it, the property will be retired from service. The property report will provide more information regarding when the property may be retired from service.

Depreciation methods:

There are three factors that will help you decide the amount of depreciation you will be able to deduct every year. These methods are the basis in the property, recovery period, and depreciation method.

Given below are the basic steps:

  • Determine basis of the property: Basis of the property is the cost of the property or money you shelled out in cash or mortgage to buy it. Settlement fees, closing costs which may include legal fees, transfer taxes, etc. are included in the basis.
  • Separate land cost and buildings: You can only depreciate the cost of building and not land, so you must calculate the value of each to depreciate the exact amount. You may require the help of experts to prepare a rental property depreciation report.
  • Decide your basis in the house: When you find out the basis of the property and value of the house, you will be able to find out your basis in the house.
  • Decide adjusted basis if required: There are possibilities that you may need to make an increase or decrease to your basis for some occasions. The occasions may take place between the times when you purchase the property until it is ready to be rented.

Final Thoughts:

Depreciation has emerged as a useful method in case you invest in rental properties. It distributes the cost of acquiring the property in the coming years and brings down every year’s tax liability. However, rental property laws witness frequent changes. Therefore, you must work with an expert tax accountant when building, operating or selling your rental property. They will also explain all of the important details of depreciation residential rental property which will prove extremely helpful.

Busting the 7 Myths of Depreciation Schedules

When it comes to tax depreciation, many myths have been floating around specifically regarding what property investors can claim. As you are aware, tax depreciation can benefit any person with an investment in assets or property. And, there are many who are not aware of the depreciation rules for rental property. You need to work out how much your investment property depreciates to claim these values during tax time. A tax depreciation schedule helps in making your rental property work for you. Here are some common myths of depreciation schedules below:

Myth#1: Commissioner’s actual life ruling needs to be utilised for all assets without any exception

Truth: The Commissioner of Taxation’s ruling is only applicable to the new depreciable property. The role of a quantity surveyor is to boost the depreciation deduction for his client. In order to achieve this, he must calculate the actual life of the second-hand assets. He should not assume that all the assets available in the property are brand new. If the asset is depreciable, you can always claim it.

Myth#2: If the assets in the property get damaged, you won’t be able to claim the balance of depreciation

Truth: Division 43 capital works mentions that if taxpayer’s capital works get damaged, the deduction will be available under Undeducted Construction Expenditure.

Myth#3: On the recovery of a depreciable asset, you can claim depreciation on it

Truth: As many investment homeowners use their property at some stage during the year, incorrect figures may surface in their tax depreciation schedule. The main motive of a tax depreciation schedule is to notify the taxpayers on what they may include in a tax return. It may be illegal or misleading if you don’t check whether or not the property was used for private purpose. You must figure out how to adjust the depreciation amount to the right sum.

Myth#4: All the expenses in obtaining a rental property will be able to get depreciated

Truth: The quantity surveyors consistently find any asset to link any and all expenses to claim a deduction without following the laws. It is wrong. You should claim a repair 100 percent only in the year in which it took place.

Myth#5: Once you have spent money on an asset or a capital work, you are eligible to claim it

Truth: As per Division 40, you should start depreciating the asset only when it is ready for use or already used. You should not start to depreciate it from the exact moment when you purchase it.

You can claim deductions only once construction gets over for capital works under Division 43.

Myth#6: If you can’t find depreciable assets in the Commissioner’s yearly ruling, you won’t be able to depreciate it

Truth: The purpose of the Commissioner’s ruling is to assess the exact lives of assets. Not to calculate what is a depreciable property. A depreciable asset is an investment property with a limited effective life. And, they may dip in value with time. Make sure that you are aware of the ATO property depreciation rules.

Myths#7: Your assets get deducted consistently at a 2.5 percent rate

Truth: The rate at which assets get deducted almost always remains at 2.5%. But, at one point of time, you can get a 4 percent rate. The 4 percent rate will be applicable on the income-producing usage of a building with regard to an industrial manner.

Conclusion:

You can seek the help of a quantity surveyor to prepare a detailed house depreciation report. The quantity surveyor will not only help in busting your myths but also maximise your depreciation deductions.

How Depreciation Works for a New Investment Property

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.

What You Need to Know About the Legislation Changes to Rental Property Tax Depreciation Claims

It’s always quite confusing to adapt to new changes. Similar to the altered legislation to the rental home returns which were observed in 2017. It has been tracked that numerous investors and rental property owners have issues regarding the claims available for them.
To everyone’s relief, what is worth appreciation is that the items under the Capital Works such as the swimming pools, toilets, windows, foundations, walls, and ceilings can be claimed for deductions just like before. There are no changes made to that category.
The alteration has been in Division 40 which includes the subparts of Plant and Equipment category including the electronic appliances, carpets, alarms etc. These are the assets which are extra, in other words, which aren’t a part of the built of the property.
Which Properties Got Affected by The Change?
Well, when summarized, it can be said that the deductions for the above-mentioned category that is the Plant and Equipment is not applicable on the condition that the property was made second hand after 7:30 pm on May 9, 2017. All the investors who have invested in the second-hand property before the mentioned time and date can claim returns on depreciation residential rental property as they used to before.
Also, if a new Plant and Equipment asset is bought after the specified date, it is applicable for claims until the asset’s life remains effective. Lastly, another notable fact is that the investors residing in their building before July 1, 2017, do not have to think about the changes made in the legislation as they are exempted from it.
How to Claim the Right Returns Efficiently?
Sometimes technical terms become quite difficult to understand and analyze and hence it is better to seek professional help rather than trying to be the jack of all trades and master of none. Hence, creating a tax depreciation schedule for a rental property can be extremely easy if done by an experienced, professional quantity surveyor. A person with that profession knows exactly what is to be done for your property and will help you extract maximum benefits by giving you a clear-cut view of your costs, expenditures, and returns.
There are a number of companies providing professional help to people in need of a good tax depreciation schedule and hence you can look out for one such service provider.
The main advantage of choosing this way is that they have immense knowledge about the concerned topic and they are aware of such minor details which can fill up your pockets and make you feel rich by just paying a humble fee for the service.
What after June 30, 2017?
For your information, even if it is past June 30, 2017, you are eligible to calculate depreciation on rental property and submit a tax schedule with your tax returns for 2017-2018. Hence, it’s a win-win situation for many of the investors.
Deriving complete information of such legislative changes isn’t a cup of tea and might leave you confused and unsure of your action despite the hard efforts. Thus, a little bit of assistance and help is never harmful.

Are You Missing Out On Tax Depreciation Claims?

So many Australians miss out on property tax deduction claims every year. Tax depreciation on property investment is a legitimate deduction which the government allows you to claim. Due to the of lack of information on investment property depreciation rules, tax savings worth thousands of dollars are missed out.

Claiming for a tax deduction on the value of your property seems difficult but with the help of a professional expert, it can become really easy. Claiming depreciation can make a huge difference in a property investor’s cash flow. Despite all of this, it is most often missed.

That is where DEPPRO comes in.

What can be Done to Not Miss Out on Tax Depreciation Claims?

In Australia, only 30% of property investors claim deductions for the depreciating value of their property. It is nothing but a non-cash expense which you can claim every year on your property depreciation. You do not need to spend any cash to make this claim.

You are claiming on the declining value of your building or asset. Of course, there are certain conditions like any other tax deduction. If you have a residential property which was built before 1985, then you can claim depreciation on Division 40, Depreciating Assets only. But if it was built after 1985, then you can claim under Division 40 as well as Division 43.

The Tax Depreciation Schedule

A Quantity Surveyor is an official who is professionally qualified to produce a legal tax depreciation schedule by the ATO. It includes the following two divisions:

  1. Division 40: Depreciating Assets: This element of property depreciation schedule is all about assets like plant and equipment, lights, fans, carpets, floating floorboards, smoke alarms, air conditioners, refrigerators and so on. Every item which has a diminishing life is included in this. The tax deduction calculation, according to the investment property depreciation schedule ATO, is carried out based on the effective life of the items.
  2. Division 43: Capital Works Allowance: The immovable parts of the structure like the building, walls, roof, swimming pool, built-in furniture, toilets etc. are a part of this division. The investment property depreciation rules state that this capital works allowance is calculated on the basis of the construction cost of the building and not the current purchasing price. So if you are buying a property, you can claim a deduction based on the original construction cost while the building was made.

How Can DEPPRO Help You?

We have been in the industry for more than 12 years now and have a passion for tax saving. Our team has industry-leading skills and can assist in all areas of investment property taxations. We are always updated and are well-versed with all the latest Australian Taxation Office (ATO) rulings, investment property depreciation rules, and interpretations for our clients.

The property depreciation schedule made by us ensures that our clients get maximum tax benefits and at the same time it complies with all the latest ATO regulations. If you have the property of your own and make money owning it, get a qualified surveyor immediately to perform a tax depreciation schedule. We have offices all over Australia. Contact the one nearest to you today!

How Does Depreciation Add Value to Your Investment?

Every investor invests their wealth into a property to earn profitable returns and this is a story prevalent since years. However, this becomes a little tricky with older properties such as an older building. Due to wear and tear from time to time, its value diminishes over time. Wear and tear of a property is a constraint that is considered at all times when you plan to sell out a property. Depreciation tax benefit serves as one of the valuable means to promote the value of commercial or residential property for investors.

If you have invested in a property of late, depreciation can help you to not only retain its value but also get you more out of it. By lowering the overall tax liability, you can save hundreds to thousands of dollars every year on your taxes.

Read on to know more about how you can get more out of tax depreciation investment property.

Tax Depreciation Adds Value to an Existing Building or Structure:

It is important to bear in mind that tax depreciation does not enhance the value of land. It maximizes the value of a property, especially an old building which is subject to wear and tear. Because it may necessitate renovation or maintenance at the subsequent stages, things can get expensive on the part of an investor. Tax depreciation on such properties can help you keep things under your control in terms of charges involved in repairs or renovation.

Tax Depreciation Does Not Involve Any Upfront Payment

Being a noncash deduction, depreciation does not necessitate the payment of upfront charges. However, to overcome various legal hurdles, it is imperative that you gain an understanding of requirements related to depreciation. This will provide you with the right idea to improve the cash flow of your investment.

Tax Depreciation Helps an Investor Conceal a Cash-Positive Rental:

Depreciation has an interesting spin-off. To elude the possibility of paying an extra amount of money, you can use the tricks of the trade linked to the Australian tax depreciation. By following this simple rule, you can make cash-positive rental look like a loss on paper. Of course, you need to reach out to the right consultant to take advantage of this feature.

What Should You Do to Reap the Benefits of Depreciation?

If you wish to enjoy the positives of depreciation on investment property ATO, the most important thing you need to do is follow the rules. This will help you keep abreast with the ways in which you can benefit from depreciation in the best possible manner.

Because it is easier said than done to deal with the ins and outs or the technical details of the rules related to depreciation, you should consider hiring a professional. Think about consulting an accountant to ensure that your practices are in line with the rules. This is the sure-fire way to benefit from depreciation as an investor.

Can My Accountant Do The Tax Depreciation Report For My Rental?

Accountants are not just tax savers but you can also call them real saviors who can churn out your taxes in the right way to save your hard-earned money. But while calculating your property depreciation costs you might wonder “Can my accountant do the tax depreciation report for my rental?” Well, this can be taken as one of the contentious issues as accountants are not qualified enough to prepare tax depreciation reports.

A tax depreciation report necessitates a greater degree of consideration than the calculation of the costs involved in materials and construction labor. Accountants are not qualified enough to carry out the construction estimate costs on their own. Additionally, if accountants claim to do the property depreciation schedule, they end up in confusion which may amount to massive financial losses. Read on to find out the reasons why an accountant is unable to carry out property valuation.

Reasons why an accountant is unable to prepare tax depreciation report:

  • Accountants are not equipped to determine building expenses, which covers more than only materials & building labor.
  • Auditors are not equipped to evaluate building works & associated expenses of past works covering the life of the rental or property.
  • Depreciation demanded by auditors without the application of a professionally qualified tax depreciation schedule is considerably more traditional & result in thousands of dollars in wasted reductions for the investor.
  • Quantity surveyors require to prepare a report in advance in order to allow auditors to carry out the tax depreciation report with the help of an investment property calculator. As accountants have no idea about quantity surveying they cannot effectively do the report if there is no quantity surveyor. Thus, it can be said that it is the quantity surveyors who are qualified enough to do the tax depreciation report. Without the help of a quantity estimator, it is almost impossible for an accountant to carry out the tax report for your rental property.
  • Construction costing and building skills are extremely essential for preparing a tax depreciation report. Without the proper knowledge of construction, one cannot manage to prepare a property depreciation report.

Thus, all your confusion ends here as now you know why an accountant is unable to prepare a tax depreciation report. In order to carry out a tax report, the knowledge of construction and building planning is an essential factor. One cannot be an accountant and a civil engineer at the same time as everyone has their own cup of tea to drink.

Conclusion:

In order to carry out tax reports for your rental property, you need to hire a property valuer with a sound knowledge of construction and quantity surveying. Quantity surveyors and valuers are well-equipped to carry out and determine tax reports for a rental property which an accountant is unable to do. Therefore, you should consider hiring a valuer and a quantity estimator to carry out your tax depreciation reports for your rental property.

Repairs, Maintenance Vs Capital Improvements

Before delving too heavily into this, first, you need to understand the basic meaning of repairs and improvements. So, what can be considered as a repair and what can be considered as an improvement? Improvements can add value to your property, making it more beneficial and fruitful for you in the long run. Basically, it will increase your profit at the end of the year. While repairs are needed to maintain the health of any asset or property, it will keep the asset in good and working condition for a short span of time. We would recommend discussing tax depreciation schedules with a professional and qualified accountant for this purpose.

Understanding Improvements:

The improvements may include:

  • adding assets or anything that adds value to your present property
  • upgrading to a new technology
  • adapting something to a new trend or technique
  • restoration of some aspect of a property

There can be some examples of improvements like installing a security system, an air conditioner, a heater, renovating your kitchen, replacing tiles, replacing the entire roof and much more. Improvements always add to the profit, therefore, you cannot deduct the cost of improvements in the current year. You have to keep track of the expenses and plan a tax depreciation schedule so that at the time of selling your property, you can get tax benefits from it.

For example, if your property’s current value is $200,000 and 20 years later you want to sell it for $400,000, but you have made improvements costing $50,000 then you need not pay tax on $200,000, rather you will pay tax on the amount $150,000.

Understanding Repairs:

Repairs are done in order to keep things moving and keep them in a healthy state. They are not meant to add value to your property, but they will bring the asset back to its original condition. They can only add short-term value to your assets. There is tax depreciation on repairs and maintenance that you do on your assets. Depreciation basically involves all the costs and expenses incurred to keep a property in a well-managed condition. Every expense can be related as a property depreciation tax deduction.

Some examples of repairs include:

  • repairing window glass
  • cleaning air ducts and vents
  • replacing electrodes in water heaters
  • replacing sewer pipes

Repairs can be deducted in the current year as they only aid in keeping your asset in operating condition, not causing longevity or prolong the useful life of the property. An example of a repair would be changing the oil in your bike. This will keep your bike in good condition, however not necessarily increase its life.

You are expected to perform repairs more than twice in a period of 10 years to maintain a working condition of your asset. These tax deductions are possible only when you are not using the property as your personal residence. You can file repair expenses only when you are using the property in your business or you are renting it. You can get more information and depreciation reports for your investments on Deppro.

Everything You Need to Know about Holiday Rentals Depreciation

Holiday rentals depreciation is not claimed as often as we’d like it to be. Investors often miss this deduction and it is surprising how strongly the statistics depict the lack thereof. This could be due to numerous reasons despite the considerable benefits of tax depreciation deductions.

In actuality, those who own holiday rentals have the ability or entitlement to make a claim against depreciation. So, they can easily be claiming depreciation on property as well as furniture which is in the ambit of the rent period.

The whopping statistics show that people owing holiday rentals can accrue a great deal of profit or savings by this. All they need to do is have a tax depreciation plan and they can save a considerable amount.

What Can You Do?
As a smart rental property owner, you can draw up your tax schedule of depreciation to be entitled for the claims. Or you can even have an estimate drawn at how much claim you’ll receive so that you have a better idea.

Being at the top of your game with your taxes can help you be an optimal business owner.

Wrapping-Up:

Being the owner of your investment property already helps you in availing the best of your business. However, being smarter and more aware along the way is the game changer. So the most optimal way to ensure maximization of profits is preparing your depreciation schedule.

All you need to do is reach out to Deppro and we’ll take care of everything. From preparing to reviewing your depreciation schedule for tax, we’ll do it all. We will even give you a review of your entitled amount of deductions.