How to Claim Tax Depreciation on your Investment Property

When you’re investing in real estate, it’s important to know all the ways you can get the most out of that investment.

A common mistake many investors make is not claiming back tax deductions for the depreciation of their investment properties over time. In some cases, this can mean missing out on thousands of dollars each year.

A quantity surveyor can help you by producing a tax depreciation report claim back value lost through depreciation. They can also help you to understand how recent changes by the federal government may have affected what you can claim.

What is property tax depreciation?

Like many other assets, real estate investments are subject to financial wear and tear that can cause them to reasonably decline in value over time.

The ATO recognises the depreciation of residential and commercial property in two categories: the “capital works” i.e. the structure of the building itself and the ‘plant and equipment’ – in other words, the appliances, carpets, blinds and other fixtures and fittings it contains.

The good news for landlords and other property investors is that you can often claim back a portion of this depreciation as a tax deduction each financial year.

Who can claim tax deductions?

If you’re buying a house to lease, you should talk to your conveyancer and a quantity surveyor to find out whether you’ll be eligible to claim its depreciation in value as a tax deduction, as it’s not always straightforward.

The 2017 Federal Budget set new limitations on what can be claimed back for second-hand residential properties. Specifically, homes purchased after 9th May 2017 – or those that were not used for investment purposes before 1st July 2017 – are no longer eligible to claim depreciation on the “plant and equipment”.

In other words, you can’t claim tax depreciation on a home or its assets if you or your family used it as a private residence prior to renting it out. However, this does not apply to new residential properties or assets, residential properties used for investment before that date, or commercial properties. Even if these changes do apply, you may still be able to claim depreciation for the “capital works” component.

How do I make a claim?

Talking to your conveyancer or a quantity surveyor will help you understand whether you’re eligible to claim for depreciation on your investment property.

There are many good reasons to consider getting a property tax depreciation report. Unlike a tax return, this report only needs to be completed once and it can include a schedule of depreciation for up to 40 years. The cost of the report itself is also usually tax deductible.

You can’t complete a tax depreciation schedule by yourself. This needs to be done by a qualified quantity surveyor registered with the ATO. They need to make an inspection of your investment property so they can calculate the depreciation of the building and its assets and then produce a report for you and your nominated accountant to refer to at tax time. Contact Aaron Satchell at Better Tax Depreciations for more information.

Do you have more questions about real estate investing?

If you want to know more about how to invest in property, download our free ebook ‘Investment Properties: how to get the best deal.’ Find out how to make money from your investment and how to negotiate with agents for a fair price.

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