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Depreciation - Investment Property

Raj Rana • Oct 09, 2020

What you need to know about building an investment property

When thinking of an investment property, your first thought probably isn't an empty block of land. But did you know that there are many advantages to building an investment property? Not only can you build the property to be fit-for-purpose, there are long-term financial benefits that can boost your cash flow.  

You can claim depreciation on all capital works and plant and equipment

Depreciation is the natural wear and tear of a building and its assets over time. You can claim depreciation on the capital works (structural component) and plant and equipment assets (easily removable fixtures and fittings) of an investment property. 

A bonus of building an investment property is that you can claim every depreciation dollar available. You can claim capital works for a total of forty years, while plant and equipment is claimed over each asset's individual effective life, in the low value pool or as an immediate deduction. 

The effective life of assets will boost your cash flow sooner

Building an investment property gives you the freedom to choose everything from the paint colour to the clothesline. 

Low maintenance is always a top priority, it's also important to keep the effective life of different assets in mind. The effective life of an asset determines the number of years that the asset depreciates across. A shorter effective life generally results in a higher rate of depreciation.

For example, carpet holds an effective life of 8 years and a diminishing value rate of depreciation of 25 per cent. While vinyl flooring has an effective life of 10 years and a diminishing value rate of 20 per cent. This means you can claim more from carpet sooner than you would from vinyl flooring. 

Remember the low-value pool and immediate deduction

There are several incentives that can accelerate depreciation deductions further for new plant and equipment assets. It's important to remember these when deciding on assets to install when building your investment property.

The low-value pool is available for assets that are valued at, or cost, $1,000 or less. When in the pool, depreciation is accelerated.

The immediate deduction is also available for some eligible plant and equipment assets costing less than $300. This means you can immediately deduct the cost of that asset in the year of purchase.

What happens if you live in the property before renting it out? 

While it may be appealing to use new the property yourself before opening it to tenants, it's important to understand the tax implications of doing so. 

Living in the property, even for a very short time, affects what you can claim over the lifetime of the investment. All plant and equipment items will be classed as previously used, and therefore not eligible for depreciation. You won't be able to claim any other deductions for expenses such as interest repayment or insurance for this time, either. 

Get a tax depreciation schedule completed sooner rather than later

It's recommended that you have a tax depreciation schedule completed as soon as your investment property is built and genuinely available for rent. 

This will mean that you can start claiming depreciation sooner. Even if the property is only available for part of the financial year, you can still claim depreciation through partial year deductions. 

Article Credit  - BMT Tax Depreciation is Australia's leading supplier of residential and commercial tax depreciation schedules. 

Contact us today on 07 3800 0807 to assist you with Rental Property Depreciation.

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Top 4 things tenants want in a rental

By Raj Rana • 13 Dec, 2021
Whether you're thinking about purchasing your first investment property, adding to your portfolio or turning your home into an investment, you need to know what tenants want. 1. Location It's impossible to know what a specific tenant will want location-wise. But this is where it's important to identify your target tenant market and what they want in their location. For example,, families may be looking for school districts, while students will be looking for accommodation close to learning institutions or with transport routes. 2. Safety and security Everyone needs to feel safe in their own home. Tenants will want a property with secure locks and doors, lockable windows and window coverings for added privacy. Looking into the safety of an area could also be a good move when finding an investment property if you're unfamiliar with the area. Research crime statistics and history to get a gauge on the area and how this may impact potential tenant demand. 3. Move-in ready condition The last thing a tenant wants to do is submit maintenance and repair requests while they are in the process of moving house. Getting all the little things sorted before they move in is a must. Work through any items with your property manager and ensure everything is covered. The benefit of doing this early means a more comprehensive entry condition report, plus you get to claim any maintenance and repair request as an instant tax deduction in the same financial year. 4. Renovations and upgrades A modern and aesthetically appealing space doesn't just appeal to more tenants, it allows you to charge a higher rental rate to improve the cash flow of your investment. The roadblock to this is always going to be the costs involved. Renovations and upgrading a property isn't cheap. But claiming property depreciation as a tax deduction at take time can make a big difference to cash flow. Depreciation is the natural wear and tear of property and assets over time, and is the second highest tax deduction available to investors after loan interest repayments. When you renovate a property or upgrade an appliance like a dishwasher with a new one, you can claim depreciation on the improvement. Depreciation is claimed each financial year across an asset's or structure's depreciable lifetime. But just because something needs to be depreciated doesn't mean you have to wait years to claim back the full amount. Depreciation incentives like the 'immediate deductions' allows you to instantly claim some assets that cost less than $300. For example, if you purchased a new ceiling fan that costs $250 for your investment property, you could claim its full cost instantly in the same financial year. To learn more about how depreciation works for renovations, contact our office on 07 3800 0807 Article Credit in conjunction with BMT Tax Depreciation. BMT Tax Depreciation has been working in the property investment industry for over twenty years.

7 Things To Do Before Renting

By Raj Rana • 10 May, 2021
Are you thinking about moving to a new house but want to hold onto your current property? Turning it into an investment for the short or long-term can be a good option while increasing your cash flow. But before you do, here are seven things you need to do before renting out your home. 1. Speak to the team at Devonshire Accountants Speak to our expertise team that will guide you through the various deductions available and any negative gearing calculations in detail. Its an important step in planning the tax implications that you can have when preparing your tax return. Our team will also fully explain the deductions available and compliance that is required by you towards the Australian Taxation Office (ATO) 2. De-personalise the property While the property is still yours, it's important to make your future tenants feel like it's their own. Happy tenants will go the extra mile to look after it. This means removing the personal items in the property from when it was your home. Remove the kids' height measurements from the walls, the family dog's outdoor kennel and have all mail redirected. 3. Fix those 'maintenance request' risks early If it's broken, fix it. It mightn't seem like a big issue – maybe it's just a small crack in the wall or peeling paint – but putting it off is just creating a future problem for yourself. Making it a future problem may also make the small issue into a big one. For example, a tired-looking deck now could just need re-oiling but leaving it for later could result in a full (and costly) deck replacement. 4. Do smart improvements If you're thinking about making some slight improvements to your property before renting it out, keep improving your rental return and tenants in mind. Smart improvements will increase tenant interest and the amount of rent you can charge. For example, if your tenant market is young families, installing a bathtub can be a good choice. Easy-to-clean benchtops and flooring options are always a winner with tenants, too. An additional point to keep in mind is the timing of the improvement. If you make an improvement while you still live in the property, you won't be able to claim depreciation on any new plant and equipment assets. So it might be best to wait until you have moved out. 5. Clean Your future tenants need to leave the property in the state it was first leased in (allowing for fair wear and tear). Your property manager will complete a condition report to ensure this happens. To make sure you can keep your tenants accountable, it's important to also do your own part. Your property manager could also recommend a reputable cleaner to get the job done. 6. Update your insurance policy Your owner-occupier home and contents insurance won't cut it when the property is an investment. You need the appropriate landlord insurance policy. Landlord insurance will cover you for many insured events, including those unique to investment properties like tenant damage and loss of rent. Insurance policies differ between providers, so it's important to read the fine print when choosing the best-suited policy for you. 7. Get a depreciation estimate Too many people are missing out on claiming thousands in depreciation deductions. Depreciation is the natural wear and tear of a property and its assets over time. As a property investor to-be, you can claim this depreciation as a tax deduction each financial year once the property is available for rent. When you make your home an investment, contact a specialist quantity surveyor, such as BMT Tax Depreciation, to provide a free depreciation estimate. This could uncover thousands in deductions that you could claim. To learn more about depreciation estimates, please contact BMT Contact us today on 07 3800 0807 to discuss how we can assist you with your Investment property.
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