What is a Depreciation Report and Why Do You need it?
Property depreciation reports, or otherwise referred to as property depreciation schedules, are tax deductions that can be claimed by individuals who own investment properties. These deductions reflect the wear and tear that occurs on an investment property over a stipulated period.
Generally, these reports fall under two categories. Plant and equipment deductions, which relate to items that aren’t part of the house structure. However, they need to be replaced after a sustained period of use. For example, these include kitchen appliances, AC units, and blinds.
Building deductions apply to parts of the house structure that may need to be replaced or repaired with the use of the house. These repairs include doors, window fittings, the home’s brickwork, and driveways. Depreciation schedules allow you to offset your investment property’s reduction in value from your taxable income.
How are the Deductions are calculated?
For you to take advantage of property depreciation schedules, your property must get inspected by a quantity surveyor. After the inspection, the surveyor will create a depreciation schedule based on the provisions of the Australian Taxation Office (ATO).
Typically, plant and equipment deductions differ for different items. Therefore, the surveyor can still calculate probable deductions by looking at the effective lifespan of the home’s appliances and other equipment.
For building deductions, ATO stipulates that new properties depreciate over 40 years. If your investment property is older than 40 years, you get automatically disqualified from building deductions. If you buy a newer investment property, you can claim 2.5% or (1/40th) of the home’s value in depreciation every year. If your home is worth 500,000 AUD for instance, your claim will be worth 12,500 AUD.
Why You Need Property Depreciation Schedules?
Given the fact that old properties depreciate at a faster rate than new ones, you stand to get a more significant depreciation break on a newer property. Nonetheless, it still makes sense for investors to hire surveyors to create depreciation reports even if their properties are older. The caveat, however, is that the said properties shouldn’t be more than 40 years old.
Creating depreciation schedules for your investment property can also help you save money through real estate. With a depreciation schedule, you can reclaim any tax deductions that you missed in previous financial years. Often, a depreciation schedule includes deductions for your property’s 40-year lifetime. Therefore, you can use it to reclaim missed deductions.
A depreciation schedule also helps you project the cost of maintaining your investment property and the replacement or repair of its components. The reports help you create projections for up to 30 years. This puts you in a position to figure out how you will finance the cost of the repairs and replacements on the buildings.
What is the Best Time to Get a Depreciation Schedule?
You should have depreciation schedules created as soon as you settle your investment property. This can be done any time and even on old properties that you can only make claims relating to worn out equipment. The cost of the report will depend on the company involved, and the location and size of your investment property.
The way that you claim wear and tear on your work car, you can claim wear and tear on your investment property. Your claims can only be worked out after property depreciation schedules have been created. Even though these reports may seem unnecessary and time-consuming, they are worthwhile. If you think about the money that you will save in the end, they become a beneficial tool. Irrespective of the condition and age of your home, you should ensure that it has a depreciation report.