Claiming depreciation can be one of the perks of owning an investment property.
Property depreciation is a legal tax deduction relating to the wear and tear of your investment property. In other words you may be able to claim a tax deduction due to your property getting older with time. The amount you can claim will vary based on the specific type of property purchased and when it was built.
If you buy a property built between the years 1987 and 2000 you may be able to claim around $3,800 in deductions a year. Similarly if you buy a property built between the years 2000 and 2019 you may be able to claim around $5,800 a year. You may be entitled to claim upwards of $12,000 in year one for a brand new property.
These figures represent an estimate rather than a definitive calculation of how much you’ll be able to claim in depreciation. As a general rule approximately 95% of the construction cost of a new property can be claimed.
A quantity surveyor can itemise all the parts of the building and produce a tax depreciation report including two sets of schedules which details how much you can claim as a tax loss each financial year as it can reduce your overall tax payable.
A depreciation schedule is generally broken into two parts. The first part relates to items that make up the structure of the building known as the “Capital Works Allowance” and the second part relates to “Plant & Equipment” such as carpets and electrical appliance which depreciates at a faster rate because they have a shorter life.
Tax Allowance Services will charge a fee of $595 for a typical residential depreciation report which is generally valid for the life of the building (40 years for a new dwelling).
It is recommended you have the report updated if you do any renovations or need to replace any fixtures and fittings. Renovations can be claimed provided the items acquired are brand new.
You can generally “backdate” a depreciation schedule by up to two years. The laws have recently changed and there is a big difference between claiming depreciation on new property compared to second-hand property.
If you acquired a second-hand residential property with a settlement date of 10 May 2017 or later and it contains “previously used” depreciating assets, you will no longer be able to claim depreciation on those assets.