When you invest in any asset, it’s important you understand any and all financial implications. Property is considered one of the safest investments any individual can make, with good stable growth and relative safety in terms of financial return. One of the key financial considerations for a property investor is depreciation. Understanding how a property depreciates is especially important when it comes to tax time, as this is likely to impact the amount of tax you’re required to pay on the property. To better understand the depreciation schedule of your investment property, let’s understand how it works.
What Is A Depreciation Schedule?
A depreciation schedule is a report that outlines all available deductions an investor can make when it comes time to complete their taxes. This tax depreciation schedule allows an investor to better understand exactly what they are legally able to claim as a depreciation deduction from their taxes. Most properties, irrespective of age, will have certain things that an investor can claim depreciation on and help lower the property’s tax payable. It’s important investors understand exactly what evidence they require, how much they can claim, and that the depreciation schedule clearly outlines the depreciation over time. The tax office will expect good record keeping, and the depreciation schedule is the report any investor needs to be keeping.
What Can Be Claimed?
In general, the depreciation schedule will account for many aspects of the property, but most importantly will be the home itself. The term wear and tear is synonymous with most asset classes, and the home is no different. If your home was built after 1985, you could claim depreciation on the building and any equipment. Depending on your property’s build date, you can claim a potential 4% depreciation per annum on the building. This may not seem like a large number, but it will certainly help save you a good amount of money come tax time.
How To Calculate The Depreciation?
The depreciation schedule probably sounds like something your accountant can handle, and you’d almost be spot on. To calculate the depreciation, especially if your home was built after 1985, you’d need to seek assistance from a quantity surveyor. According to tax codes, real estate agents and accountants are not allowed to estimate the costs associated with the build of the property. A quantity surveyor will prepare a report after inspecting the property that your tax agent can then use to help calculate your deductions. This report is an important requirement to satisfy the tax authority and include detailed notes and photographs of the home’s depreciating assets and areas.
What About Renovations?
Renovated homes can still claim the depreciation as a deduction come tax time. The tax authority will require a detailed report on the renovations, the costs, and any other information you may have about the renovation. If a previous owner completed renovations before you bought the home, don’t worry, you’re still entitled to claim the deductions from the depreciation schedule.
How Much Does The Schedule Cost?
The costs of preparing the depreciation schedule will vary depending on the type of property you’ve invested in, its size, and the quantity surveyor you choose to use. It’s important to shop around and get the best deal and expertise you can for your property investment. Many surveyors offer guarantees around the amount you’ll save come tax time, or they’ll give your money back, so in essence, there isn’t a lot to lose by completing a depreciation schedule for your property.
Tax time can be complicated enough without introducing a variety of investments into the mix. If you do have an investment property, you must maximize your deductions come tax time. A depreciation schedule is the best way to maximize those deductions. If you’re considering a depreciation schedule, use this simple investor’s guide to get started now.