Tax Deductions On Property

When investing in property, it is important to make sure that you not only have the lowest available rate that you can get, but also have the correct loan features for your needs. One of the tax deductions you can claim on your investment property that is frequently overlooked, particularly by first time investors is property depreciation. For this you need to organize a depreciation schedule when you purchase the property, so you can start claiming the tax break as quickly as possible. Property depreciation occurs as an item’s worth becomes less over time as it is used and it wears out. When you’re talking about a tax deduction, depreciation is a method of allocating the cost of an item over its useful life. For instance, if your property has an oven that is valued at $1,000 and has a ten-year life, you can claim $100 against your taxable income for 10 years on that individual item. With an investment property, you are only allowed to claim Sydney property depreciation on certain items against your taxable income.

There are two types of property depreciation that you can claim:

Depreciation on plant & equipment

This refers to items within the building like ovens, hot water heaters, air conditioners, carpets, blinds and so on.

Depreciation on buildings or ‘building allowance’

This refers to the construction costs of the building itself, such as concrete and brickwork.

Older structures might be more susceptible to deterioration than newer ones, or more vulnerable to obsolescence ‘shocks’ in terms of changes in technology, user requirements or building regulations. Obsolescence means that it is difficult to observe a neat pattern in depreciation as buildings age; while deterioration may be relatively predictable, the sources and impact of obsolescence are much harder to estimate. Nonetheless, it is clear that age, in principle, should have an important influence on rental depreciation rates. While buildings of a certain generation may have similarities in design and construction, there will be variations in quality and in the amount of management input (repairs and renovation) that those buildings have received. In certain locations the rent occupiers pay might be underpinned to a greater extent by the value of the location, which may either appreciate or depreciate over time. Wider market conditions are also very likely to be important as they influence the demand for and supply of buildings. Explanatory variables included age, expenditure rates, a proxy variable for quality, estimates of land values for different locations, and variables representing wider economic and property market conditions. All types of income-producing properties have substantial taxation benefits available to be claimed as tax credits; unfortunately, many investors are missing out on literally thousands of dollars in lost tax depreciation deductions. Both new and old properties will attract some Sydney property depreciation benefit that the owner is able to claim as a tax credit. A common myth is that older properties will attract no claim. Anything in the property that’s part of a previous renovation will be estimated by a quantity surveyor and deductions calculated accordingly. This includes items that aren’t obvious, such as new plumbing, water proofing, electrical wiring etc. For capital improvements to qualify for the Division 43 capital write off allowance, they must have commenced construction within the appropriate Division 43 time periods.