BECOMING REAL ESTATE DEPRECIATION WISE
In terms of depreciation, what should you consider when making an investment property purchase decision?
If you are looking to purchase an investment property, it is worthwhile asking yourself a number of questions. While many investors consider location, purchase price and tenanting ability when contemplating an investment property purchase, they often overlook depreciation as an important factor.
Real estate depreciation can help unlock the cash flow potential within an investment property, often meaning the investor will have thousands of additional dollars each financial year. There are several factors for consideration that will enable the property owner to maximise tax depreciation benefits including:
- The age of the property: both new and older properties will attract some depreciation deductions, although a property with an age between 1–20 years will provide higher depreciation than an older property.
- The type of property: if the property is part of a strata complex or community title development, each unit is entitled to claim common property benefits in addition to the unit’s depreciation benefits.
- The amount of common property: common property items within a strata or community title complex such as lifts and swimming pools are included in the depreciation report. The more common property there is, usually results in higher depreciation claims.
- The amount if plant and equipment are items that can easily be removed from the property as opposed to items that are permanently fixed to the structure. Plant and equipment includes items such as light shades, stoves, air conditioning systems, blinds and carpet. These items can be depreciated at a higher rate and add significantly to the depreciation claim. More plant and equipment generally means higher depreciation claims.
Once you have purchased an investment property, what can you do to increase your depreciation deductions?
In order to maximise the tax benefit your investment property will attract, you will require the services of a recognized quality surveyor with specific property tax depreciation skills and experience.
To ensure you claim all your entitled depreciation deductions a site inspection will need to be carried out as this will accurately identify all items of plant and equipment. These specific items attract higher depreciation rates than what is applied to the building. An over capitalised property with more expensive fittings such as ducted air conditioning and stainless steel oven, cooktop and rangehood will have a higher depreciation claim than less expensive fittings such as split air conditioning and an upright stove.
We advise all property investors to seek independent advice from their own taxation specialist.
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About Jhai Mitchell
Jhai is an award winning Internet Marketing Real Estate Agent for Elders Toongabbie and Kings Langley. After running his own internet marketing business he has now set his own sites for the real estate industry. He observed that 90% of real estate agents did not know how to market themselves online. Jhai is now fixed on one goal. To teach real estate agents that they can market online so much better than they currently are.
Since then he has been consistently quoted in the Sydney Morning Herald and Real Estate Business online. He is a regular guest blogger on TheHomePage.com.au, sharing his expertise of marketing aspects for the Real Estate Industry. His biggest passions are his wife, martial arts, dogs and most of all property.