When Buying Rental Property, Pay Close Attention to Tax Depreciation
Many younger Australians opt to rent their first property rather than buy it as they try to navigate through tumultuous times. You may be aware of that trend and have decided to buy a rental property or two yourself to capitalise on the opportunity. If so, you need to consider many factors and will have to look closely at your financial calculations to ensure that you make some profit. In particular, you need to be aware of tax depreciation schedules and how they can markedly affect your end-of-year figures. What do you need to know?
The ATO allows property owners to consider wear and tear and declining values when calculating their tax dues. They allow rental property owners to create a depreciation schedule that can go into great detail and itemise capital works deductions, together with plant and equipment depreciation for the entire property life.
Working with a Quantity Surveyor
You will need to create one of these schedules for each property that you buy, and bear in mind that it can only be generated by a quantity surveyor. You need to budget for the cost of creating the schedule, but this could pale in significance compared with the values you may be able to claim back. After all, many experienced quantity surveyors can identify deductions that you may never have thought of as they are crafting the schedule.
Going into Detail
It may take some time for the surveyor to generate the depreciation schedule as they will need to assess the property in a painstaking manner. They will look at each fixture and fitting and refer to guidelines produced by the tax authority. They can then create the document in accordance with industry standards.
Claiming Instant Write-Offs
In your first year, you may be able to claim certain "instant" asset write-offs. These may apply to some low-value items, and in this case, you won't need to depreciate them over time but can do so in one go. The surveyor will also discuss the methodology and advise you about the different methods of depreciation, including diminishing value and prime cost calculations.
Splitting the Schedule
If you intend to go into a joint venture and buy these investment properties with another party, discuss this with your quantity surveyor. They'll be able to generate split schedules, so you can each maximise your own deductions.
Getting the Work Underway
Start the ball rolling by talking with a quantity surveyor in your area. They will do everything they can to find each and every available deduction. For more information on tax depreciation schedules, contact a professional near you.