Depreciation and Tax


Did you know that approximately 80 percent of real estate investors pay extra taxes on account of unclaimed tax deductions? Are you sure you are not one of them? Investment properties are treated as taxable because of the income they generate for owners. The proceeds from such properties are subject to certain tax deductions, including depreciation. Depreciation can be claimed on both positively and negatively geared investment properties. In fact, if you own a negatively geared property, you can claim up to 60 percent of your investment (the property purchase price) with the help of depreciation and other appropriate tax benefits!

What is depreciation?
Depreciation is the gradual wear and tear-related reduction in value of any tangible asset, which occurs over time. Buildings for instance, wear out when they get older. So do machinery and several pieces of household equipment or fixtures. In Australia, you can list depreciation as an expense on your tax return – a fact that is lost on a majority of investment-property owners.

It is important to understand that your investment property has been depreciating gradually and will continue to do so. It is an expense for you, even if you haven’t spent any dollars on the property recently. These expenses can be offset as time-related wear and tear against the income generated by the property. By claiming depreciation of building and its items, you can have a fixed amount deducted from your taxable income. That is, the total amount on which your tax payable is to be calculated, reduces. This in turn reduces the total dollars you have to part with, in the form of taxes.

Ways of claiming depreciation
The easiest method of claiming depreciation deductions involves the use of a Tax Depreciation Schedule. It is a broad outline of the specific items that have depreciated over a fixed period of time, which can be claimed for deductions. Different tax regimes have different rules related to depreciation as a tax deduction. Depending on those rules, individual items are qualified. For instance, furniture, air coolers, heaters and water heaters qualify for deductions and can be listed in the Tax Depreciation Schedule. After the Schedule has been prepared, hand it over to your accountant for inclusion in your tax returns.

Tax depreciation schedules by First National Real Estate
Tax Depreciation Schedule is best prepared by a qualified Quantity Surveyor who is well versed with the process of qualifying items for depreciation, analysing them and creating a schedule. You stand the risk of losing hundreds even thousands of dollars due to qualified items that were wrongfully left unclaimed.

Some of the commonly missed depreciation deductibles include recreational facilities like swimming pools or tree houses, decorative pieces of art and sculpture and capital improvement or maintenance expenses like extending/adding a wall or installing a new fixed appliance. We have experts at First National Real Estate that are up to date with the dynamically changing laws of the Australian Taxation Office and will help you maximise the returns on your investment property by handling depreciation and taxes craftily.