Depreciation and your rental property
For new or recent investment properties purchased, having a clear understanding of depreciation from the beginning is an extremely important and helpful tool when it comes to managing your property portfolio and your tax.
Newly built residential properties can generate a considerable amount in depreciation deductions over the first five years and even older properties that have received qualifying improvements can yield substantial depreciation value.
To break it down, when a property is purchased, the owner is essentially purchasing the structure of the property plus depreciating assets. These assets are not part of the property’s structure; they are identifiable as separate to the structure, unlikely to be permanent and, generally, can be replaced within a relatively short period of time.
As a rental property owner, you can claim a deduction on the item’s decline in value, but it is important that you understand the legislation correctly. Detailed record keeping is essential, and its importance cannot be understated.
Depreciating assets have an ‘effective useful life’ and they’re reasonably expected to decline in value over time. Some examples are carpets, appliances such as dishwashers or washing machines, furniture, air conditioning units and curtains. These are likely to have a period of use that is not infinite and will need to be replaced at some point.
For new assets, including those purchased with a newly built or substantially renovated property, you may be entitled to claim a deduction if no one was previously entitled to claim, however, for second-hand depreciating assets there are specific conditions and limitations.
The Australian Government’s ATO website is a valuable resource in understanding the ins and outs of depreciating assets, but it is crucial to ensure you seek professional advice for your specific circumstances and your unique property to ensure the complexities of what you can and can’t claim for your property are met.
Don’t DIY or AI for your depreciation schedule. Talk to your accountant, your financial advisor and seek professional guidance to ensure that your schedule is both accurate and effective. The legislation is complex and taking shortcuts or guessing what can/cannot be claimed will only lead to trouble.
Credit: REMAX Australia
