How Tax Depreciation Schedules Save Property Investors Money
Did you know that depreciation is potentially one of the most valuable tax breaks available to property investors and landlords?
But many aren’t claiming it. We take a look at what a tax depreciation schedule is and how they can save property investors money.
What is a tax depreciation schedule?
A tax depreciation schedule is a report that breaks down the depreciation-related tax deductions you can claim on your investment property.
Depreciation is the reduction in the value of your investment property over time due to wear and tear. The Australian Taxation Office (ATO) permits landlords to claim that depreciation as a tax deduction.
There are two ways a property investor can claim depreciation.
1. Capital works deductions
This is the depreciation of the structure of the building. For residential buildings constructed after September 1987, the ATO allows investors to claim this type of depreciation over 40 years. Depreciation can also be claimed on substantial renovations, including those carried out by the previous owners, provided they were not ‘used’ before the property was sold.
2. Plant and equipment
This is the fixtures and fittings within the building, such as carpets, air conditioning units, light fittings, ovens and so on. The ATO itemises all the assets that you can claim, and for how long. You can claim tax allowances on depreciating assets no matter how old your property is.
What are the benefits of getting a tax depreciation schedule?
Getting a tax depreciation schedule means you can maximise your tax deductions, and therefore increase the return on your investment property.
It’s estimated that only 20% of property investors claim tax depreciation each year, despite the fact that in most cases investors are entitled to deductions. That means 80% of investors are missing out on potentially saving thousands of dollars every year.
Why do you need a tax depreciation schedule?
Which deductions you can and can’t claim gets very technical, and that’s why you need a professionally prepared tax depreciation schedule. It’s important that deductions are correctly assessed and estimated to ensure they comply with the ATO’s rules and regulations.
Tax depreciation schedules are prepared by quantity surveyors, a profession recognised by the ATO as qualified to estimate construction costs and asset values. Many people think preparing a depreciation schedule is something their accountant can do, but a quantity surveyor needs to prepare the report before the accountant can work with it.
How do you get a tax depreciation schedule?
Find a quantity surveyor specialising in tax depreciation. Many quantity surveying firms offer free estimates or quotes for tax depreciation schedules.
If you’re unsure whether you can get a depreciation schedule for your property, they’ll be able to provide advice.
Once you decide to go ahead, the quantity surveyor will inspect your property to note all the depreciable items.
The ATO also has an online depreciation and capital allowances tool to help work out your deductions and claims before you purchase a depreciation schedule.
What does a tax depreciation schedule cost?
The prices of tax depreciation schedules vary considerably. They range from a few hundred dollars for a budget self-assessed report to $700 or even more. A schedule for a brand-new property generally costs less than one for an established home. Beware of suspiciously cheap reports – they may not be as thorough or as accurate and may result in you missing out on deductions, therefore money over the longer term.
The good news is that buying a tax depreciation schedule is a one-off cost. Once your schedule is prepared, you can use it each year at tax time without needing to have it done again. And better yet: the fee you pay the quantity surveyor is tax deductible!
For more expert advice about property investment in Brisbane, contact our specialist property management team today.
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