Unfortunately too many property investors in Australia lose out tax depreciation benefits worth thousands of dollars every year. They fail to claim the legitimate investment property depreciation deductions. Not claiming the tax depreciation on your property is like not charging rent to your tenants.
One of the major reason why they don’t have a depreciation schedule is simply because their accountant never asks them to get one. Maybe because even their accountant is unaware about it. So lets try to understand what a depreciation schedule is and why does an investment property owner needs it?
The dictionary definition for depreciation is: “A decrease or loss in value, as because of age, wear, or market conditions.”
Investment property depreciation is a form of income that property investors can make, in the form of tax depreciation deductions. The Australian TaxationOffice (ATO) allows investment property owners to depreciate the value of their investment properties and claim the amounts as tax deductions against the income tax that they have to pay on the profits. Maximum property depreciation deductions can generally be achieved on new properties, however older renovated properties can also be entitled for significant investment property depreciation benefits. But, the depreciations are obviously incurred more on newer properties.
Therefore, it is advisable that, when investing in property, one must strategize on purchasing brand new properties which offer high levels of depreciation. And, we can utilize the tax depreciation benefits to sustain the investment property while it grows older. As authorised by the ATO, depreciation schedules can only be obtained from registered quantity surveyors in Australia, while your accountant can be consulted for tax deductibility of the items included in the tax depreciation schedule.
Thus, it’s imperative for all property investors to at least inquire whether or not they are eligible to any investment property depreciation deductions on their property. The easiest way to find this out is by contacting a reputable quantity surveyor who have considerable expertize in preparing tax depreciation schedules. The quantity surveyor will ask a few standard questions to determine whether it is worthwhile, and how much tax depreciation deductions you can claim. The fee to prepare a depreciation schedule is 100% tax deductible.
The best thing about investment property depreciation is that we actually didn’t pay for it, i.e. we don’t have to pay anybody for the “decrease or loss in value” of the investment property, but we are allowed to claim the tax depreciations! People in the accounting industry generally call this paper loss, since no money actually comes out of the investment property owner’s pocket!!