Property depreciation is a tax benefit that may investors don’t learn about until they’ve owned a property for a number of years.
Depreciation could see you enjoying more money back into your pocket from day one of having settled a property, as Tyron Hyde from Washington Brown shares with Your Investment Property.
“Just like you can claim the wear and tear of a computer against your taxable income for a business, you as a property investor can claim the wear and tear of a property investment against your taxable income,” Hyde explains.
Whist other property tax deductions, such as the costs that are associated with any repairs and maintenance work, require the signing of a cheque or the swipe of a card, Hyde says the depreciation costs are already embedded in the property itself.
This means you can claim a deduction for items that already come with the property.
But, how can you work out how much you can claim?
“You need to engage a quantity surveyor, who will go out to a property, and we work out what things cost to build,” Hyde shares.
“We break down the construction costs of the property into things like bricks and concrete, and ovens and dishwashers. We give you a report that itemises those costs and how much you can claim for each of those items.”
The surveyor’s report can then be passed straight onto an accountant, who will strip the costs from your total taxable income, in the year in which the report specifies.
“What that means is: if we say, in the year 2020 you can claim $5,000, that will come off your taxable income. If you’re on the highest marginal rate of 47%, that means that you get a net return of $2,400. So, a depreciation schedule is a really worthwhile investment,” Hyde explains.
For those who haven’t obtained a schedule at the time of first purchasing a property, Hyde assures that there’s no need to worry.
“The good news is depreciation specialists can go back to when you actually bought the property and work out the deductions back then. You can then amend your tax returns for at least two years in order for you to backdate your claims,” he says.
Wondering exactly how much the buy-in price is for a depreciation schedule?
The cost can fall anywhere between $440 to $770, according to Hyde, and prices vary depending on the property type and its location. However, no matter how many bedrooms the property hails, the cost of the schedule is generally tax deductible.
If you want to know how depreciation can help you claw back more profits from your investment property, this video covers everything you need to know about depreciation.