How Depreciation Schedules Can Save You Money at Tax Time
One of the best tax breaks available to property investors is depreciation. However, in order for you to claim it, you’ll need a depreciation schedule.
What can you get from a depreciation?
There are two types of depreciation allowances that investors can obtain:
– Depreciation on building allowance
– Depreciation on plant and equipment
Building allowance – widely known as the building write off, the building allowance is the deduction available on the building structure (e.g. concrete, brickworks).
Plant and equipment – the allowance for removable items within the building (e.g. dishwashers, carpet, oven, including the garbage bins)
Nonetheless, you can only qualify for these types of deductions if your property was built after July 1985. Then again, you can still claim plant and equipment depreciation if your property was built prior to the said date. Even for older properties, the savings can be quite considerable.
What is a depreciation schedule and what does it include?
A depreciation schedule is a meticulously written document that consists of the following:
– A breakdown of all the costs of the building allowance.
– A breakdown of all the costs of the plant and equipment.
– A breakdown of the amount that you can claim annually based on the financial year end.
– The rates at which you can claim different items, as well as the effective lifespan estimate of each of these items.
The report should be able to simplify your plant and equipment depreciation by two methods, which will give you options for claiming depreciation on your assets depending on your needs:
a. The Diminishing Value Method
b. The Prime Cost Method
How To Get a Depreciation Schedule
You will need to arrange for a site inspection with a qualified quantity surveyor for you to be able to create a depreciation schedule. This is if your property was built after 1985 and/or in case the construction costs are undetermined. It is an ATO requirement.
Your property will be visited by a quantity surveyor who will measure, photograph and document all qualifying items. This is done so you would not miss out on any deductions. One benefit of hiring a quantity surveyor is that they might even find things you didn’t know were deductible.
When To Create a Depreciation Schedule
The perfect time to prepare a property depreciation schedule is right after you settle on a property. Doing so will provide you with the most precise values and minimise disruptions for any tenant that might be moving in. In addition, since investment properties can provide significant tax deductions, you also have to create a depreciation report before and after any scheduled renovations.
The cost of creating your depreciation report will vary depending on certain factors such as its location and size. Then again, don’t let the costs discourage you. There are a lot of well-known quantity surveying companies that offer a money-back guarantee and 100% tax deductible fees. There isn’t anything for to lose, really.
