Property Depreciation

Own an investment property? Or planning to buy an investment property?

What is depreciation?

Depreciation is the wear and tear that occurs as things get older. As items get older, the value of these items also decreases in value. This is called depreciation. When it comes to your investment property, these items are categorised into 2 categories – Plant and Equipment or Capital Works. The wear and tear of either plant and equipment or building in an investment property is called tax depreciation. Depreciation that you as an investor can claim as tax deductions enabling also increased tax refunds.

1. Plant and Equipment: Items that can be easily removed from the property and generally these include items that are motorised and have a shorter expected life span such as cooktop, rangehood, oven, air conditioning units, smoke alarms, lights, garage door etc.
2. Capital Works: this is also known as Division 43 deduction. This includes frame of the building, retaining walls & fence, concrete slab, sink & Basins, toilets, and vanities etc.

As an owner of investment property, claiming depreciation will enhance your cash flow by increasing negative gearing. Depreciation is often overlooked by investors since no money is spent on the wear and tear of the property, this is a fictitious expense.

Both new and old properties have depreciation available depending on the age of the property, whether renovations were done etc. Deprecation deductions can go into thousands of dollars each year.

Deprecation methods –

1. Prime cost method – under the prime cost method, also known as the straight-line depreciation, you calculate the decrease in value of an asset over its effective life at a fixed rate each year.
2. Diminishing value method – under the diminishing value method, you claim depreciation at a higher depreciation rate in the first few    years of property ownership. As a result, the depreciation deduction value will decrease each year until the asset value is full exhausted.

Expert Tax is an experienced and qualified tax agent that lodges numerous rental returns every year.

Contact us for assistance with lodgment of your rental return.