Investing in real estate is often a wise financial decision, but it can also come with some added tax responsibilities. Fortunately, there is a perfectly legal method of minimising those tax responsibilities related to investment property.
An Overlooked Solution
Many owners of investment property fail to claim for depreciation, either because they have a limited understanding of how the claim works or because they’re not aware of just how much money they may be able to save by doing so. Because the value of depreciation for residential investment properties can often range anywhere from $1,500 to $15,000. Depending on your tax bracket, this can translate to significant savings in the first full claim year alone. If you’ve never made a depreciation claim, you’re also entitled to a claim for up to four prior years of investment property ownership.
Understanding Property Tax Depreciation
While some owners of investment properties fail to claim for depreciation because they’re not aware of just how much they can actually save, others miss this valuable opportunity because they’re either not aware of the option or don’t know how it works.
To understand depreciation claims, it’s important to first understand what depreciation actually is and how it affects your property. Because property can decline in value over time just like any other major purchase, the Australian Taxation Office allows the owners of properties used to generate an investment income to claim the declining value of that property in the form of a tax deduction.
The total amount of allowable deduction will be dependent upon the date of building construction but is either 2.5% or 4% of the Capital Works Component of building cost. Some items, like appliances, smoke detectors, carpeting and air-conditioning, are also granted an accelerated depreciation rate. By claiming these depreciations each year, you can help to offset both the cost of taxes and the costs of necessary repairs to your investment property.
Taking Advantage of Tax Depreciation Reports
The most effective way to take advantage of your legally allowed tax deductions is to obtain tax depreciation reports. Because a professional who specializes in building inspections and depreciation reports have expert knowledge in the field of construction, including related costs and expenses, they’re able to build a reasonable estimate should receipts or original documentation become lost or damaged. This also applies to improvements and renovations information, compiled into a report compliant with ATO regulations.
If you’re not filing depreciation claims for investment property, you’re almost certainly missing an opportunity to minimise expenses. A depreciation tax report can help you to realise substantial savings through lowering your owed amount of taxes. The costs of obtaining depreciation reports are also fully deductible, so there’s no reason to skip this valuable evaluation.
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