Tax season is right around the corner and with this in sight, expect many accountant offices filled with property investors. This time of the year is a great opportunity for property investors to get their finances in check to further understand tax deductions which in turn puts money back in their pockets. This post is about Property depreciation and i have mention points you need to consider.
To those unfamiliar, depreciation is performed against your assessable income. It essentially reduces the amount of taxation payable for property owners. One will need a property depreciation schedule to keep track of the financial deductions each year.
As property owners and investors know too well, the higher the income, the more tax you’re obliged to pay. This is where depreciation schedules come in handy as it assesses and increases your investment’s value hence, reducing your tax and maximizes the return of investment.
If you’re new to the whole discussion on property depreciation, here are basic knowledge you should know to get the most from your entitlements.
Get your property assessed for depreciation deductions
The first step to get you on track for figuring out depreciation deductions available for your property is by contacting a qualified Quantity Surveyor. This person will be the one to appraise the value of your property and create a report or depreciation schedule.
A lot of investors tend to skip this as they believe their property is less likely to have any depreciation deductions at all. Property owners and investors need to know that even if the property was constructed in the 1960s or 1970s, chances are it still has significant deductions available. Properties of this age surely have had renovations and improvements done through the years by previous owners which attracts depreciation deductions you’re now entitled to claim.
Any updates, renovations, reconstructions or general improvements such like kitchen renovation, there will be something there to claim.
If you’re still unsure, there’s no harm if you speak with experts to determine and assess your property. Who knows maybe you have thousands worth of depreciation deductions under your claim.
Back claim for missed deductions
As mentioned previously, assessing your property for tax depreciation is a must, it’s a step you shouldn’t skip. Now if you purchased a property, say years ago, there’s a good chance you’ve missed out on a lot of deduction due to failing to have a depreciation schedule prepared.
There’s a catch though, from four financial years of back claim, it has decreased recently to two financial years. Still, those two years added up is a lot.
Prepare a depreciation schedule that starts at your settlement date and from there, shows all the available claims you’re free to access.
Be sure to get yourself a qualified accountant to settle your missed deductions and prepare you a depreciation schedule in order to amend years’ worth of previous returns come tax season.
Prepare a property depreciation schedule ASAP
Just in case you don’t think we’ve stressed enough how important depreciation schedules are, we’re here to remind you once more.
Even if you’re only able to purchase a property days or weeks prior to the financial year, you’d still have some good number deductions due to tax legislation. Have your schedule prepared upfront. This is important especially if you plan on scrapping.
On the other hand, if you plan on renting a property and conduct a renovation, it’s crucial to have a schedule of depreciation deductions on hand before the works are completed. The reason behind this is depreciation on plant and equipment assets (i.e. blinds, curtains, microwave oven, stoves, etc.) will have residual or written down value. If you ever throw away these items, you may have the ability to claim 100% residual value of such assets.
Having a report of your deductible assets written down can add up to thousands worth of deductions that can aid you with future or present reconstruction costs.
Itemize repair and maintenance costs
Renovations and reconstructions, some can be counted as capital improvements which can be depreciated at a good value over a number of years.
Keep track of your expenditures. Your hired Quantity Surveyor will highlight which assets can be considered repairs and maintenance which in turn can be claimed at 100% of the value. Examples are HVAC system repairs as well as touch-up paintings.These can be claimed at full value, no need to wait for 40 years.
Got anything to add in this list? Leave a comment below!
About Chie Suarez – Property depreciation
Chie is a daytime writer for Depreciator – Tax Depreciation Schedule, a company dedicated completely to Tax Depreciation Schedules that aids the Australian property market.