What every investment owner needs to know about depreciation

With the end of the year approaching and new year resolutions just around the corner, it is usually a time when buyers are on the hunt for a property and property owners think about renovating their current rental property. If you find yourself hunting for prospective properties then it’s worth considering how depreciation plays into the equations. Even a couple of small decisions can have a significant pay off.

When renovating or buying a property, you need to be able to maximise your return from the start. It important to know which items can be depreciated at 100% to help you maximise your return. Essentially, depreciation is really about claiming the wear and tear on your property, from carpets and blinds to ovens and dishwashers.

Simply put, it’s a way to reduce your taxable income and it’s perfectly legal.

As a key note, new properties have a higher rate of depreciation and higher developments can have more claims on them due to lifts and structural requirements. Developments with pools and gyms can also often see more claimed due to higher ratio of plant and equipment to the purchase price. Furthermore lower priced properties have a higher deprecation ration.

Here are our tips to remember when it comes to depreciation:

#1 Individual items under $300 can be claimed immediately

A key tip to remember is if you’re going to buy a microwave, buy one at $299 instead of at $320. This is better than depreciating it at the prime cost rate of $10% per annum (or $30 in the first year). That’s a 1000% increase.

#2 Big budget items can be claimed to

If your portion of an expensive item is under $300, you can claim it. For example, a garage door costs $5,000 in a building of 20 units; therefore you can claim your cost of $250. This amount can be depreciated immediately.

#3 A higher rate can be applied to items valued between $300 and $1,000

Through the low value pool method, you can claim these at a rate of 37.5%. So if you purchased an oven for $950 you can claim $356.

#4 Divide and conquer

If you have purchased a property as a group, say with family or friends, ask your Quantity Surveyor to divide the depreciation report between the investors to get more bang for your buck!

Remember, depreciation is the only non-cash deduction available to property investors. For more information or if you’re looking to buy a property, contact one of our expert mortgage brokers on 02 9299 7044 or visit www.clarencestreetmortgages.com.au

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