Your investment property is considered an asset, therefore you can get a tax depreciation. There are two ways to claim it: The Diminishing Value Method and the Prime Costs Method. What you choose will depend on your resources and long-term intentions for your investment.
The Diminishing Value Method
The Diminishing Value Method is the most common form of claiming depreciation. Many opt for the diminishing value method to ensure they get the most benefits in their tax each year before selling the property and moving on. This method considers the rate at which your investment property will decrease in value over time. As most assets will experience the largest decline in value during the first years, the amount you can claim is higher during this period.
The Prime Costs Method
The Prime Costs Method is also known as the Straight Line Method. It is a linear depreciation of an asset, meaning that it experiences the same level of depreciation over time. For some property investors, this method can be more beneficial than the diminishing value option, as once you have done the original calculation, it allows you to claim the same exact amount each year at tax time.
The Depreciation Schedule
A depreciation schedule is a report that separates your assets into capital works and depreciation assets, then tells your accountant how much depreciation they can claim on your investment property
You should start organising the creation of a depreciation schedule right after the settlement of your new investment property. If your investment property isn’t new to you, you are still able to organise the creation of a depreciation schedule to start claiming deductions as you move forward.
You will need to employ a qualified quantity surveyor to inspect your property to identify what can be claimed and added to the depreciation schedule. It’s important to ensure you employ a professional quantity surveyor who knows exactly how to assess your investment property.
A quantity surveyor will prepare your depreciation schedule report and their fees associated with creating your depreciation schedule are fully tax deductible.Once the depreciation schedule has been finalised, this should be given to your accountant to keep on record for use in relation to all of your future tax returns.
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