The value of a depreciation schedule in property investing!
Depreciation is a common term in property investment, but its significance is often overlooked. It's a valuable tool that property investors can use to reduce their taxable income. This can result in substantial savings over time. However, not all properties are eligible for depreciation, and the rules can be complex. In this post, we will discuss the triggers for when a depreciation schedule would add value for a property investor, including new builds, properties built after 1987, and significant renovations.
New Builds
One of the triggers for when a depreciation schedule would add value for a property investor is when the property is a new build. New builds offer the advantage of maximum effective life for depreciation purposes. The Australian Taxation Office (ATO) allows property investors to claim depreciation on new buildings, which is calculated at 2.5% of the original construction costs over a 40-year period. This can result in significant tax savings for the property investor.
Properties Built After 1987
Another trigger for when a depreciation schedule would add value for a property investor is when the property was built after 1987. This is because, under ATO rules, residential investment properties built after 16th September 1987 are eligible for a Building Allowance. This can be claimed as a tax deduction over a 40-year period. The Building Allowance is calculated at 2.5% of the original construction costs, making it a valuable source of depreciation for property investors.
Significant Renovations
A significant renovation, typically defined as a renovation in excess of $40,000, can also trigger the need for a depreciation schedule. The ATO allows property investors to claim depreciation on significant renovations, which can be spread out over a 40-year period. However, it's important to note that not all renovation costs can be depreciated. Only capital works can be depreciated, which include structural improvements and modifications.
Seeking Professional Advice
While a depreciation schedule can provide valuable tax savings, it's not suitable for all properties. Each property is unique, and the decision to use a depreciation schedule should be based on the specific circumstances of the property. Therefore, it's always advisable to seek professional advice before making any decisions.
A depreciation schedule can add significant value to a property investor. It's a tax-efficient strategy that can help reduce the taxable income and increase the cash flow from the investment property. However, the decision to use a depreciation schedule should be based on the specific circumstances of the property, so it's always best to seek professional advice before making any decisions..
