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 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.

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Cnr Federal Road Prospect Highway Seven Hills NSW 2147 Australia