Many property investors fail to understand the value that a Tax Depreciation Schedule can add to an investment strategy. This article will explore why property investors should consider if a tax depreciation schedule will be of benefit to them and what advantages a tax depreciation schedule can bring.
A tax depreciation schedule, for those who don’t already know, is a comprehensive report which identifies depreciation allowances for an investment property. It is a document that tells your accountant how much depreciation to claim for several parts of a property, which is basically the amount you can be compensated for wear and tear over a period of up to 40 years.
Benefits of a Tax Depreciation Schedule
The benefits of a tax depreciation schedule can be far reaching. Depreciation deductions can significantly reduce your taxable income and help your property return a positive cash flow sooner. Basing your purchasing decision purely on tax depreciation benefits, however, is a mistake because it fails to consider the long term goals as to why an individual is investing in the property market. A more holistic approach needs to be considered.
How to Complete a Tax Depreciation Schedule
In order to complete a tax depreciation report for a specific property, an investor would need to engage a Quantity Surveyor. They will arrange a physical inspection of the property to determine what tax depreciation’s are applicable.
Tax Depreciation Schedule Analysis
MCG Quantity Surveyors recently completed an analysis of the data that they collect, as a result of completing these tax depreciation reports for property investors. This report is available for download HERE.
The results demonstrated that the trend in buying behaviour since 2016 indicates investors are increasingly moving towards new/off-the-plan units and townhouses and new house-and-land package holdings rather than investing in existing homes. The four year increase in the percentage of investors buying new property was 107.53% according to this report. I caution investors to review a previous Blog Post of ours HERE before considering a brand new investment property purchase.
Of interest, this report also showed that townhouses have provided the most tax effective investment type, with the highest total deductions as compared to detached houses and units.
The most alarming figure in this report was the fact that Australian investors who’ve delayed ordering a tax depreciation schedule have potentially missed out on $2.9 billion in deductions! On average this equals approximately $20,537 in depreciable benefits for an individual investor. These missed tax deductions due to inaction are at epidemic proportions!
In closing, it is evident that property investors are becoming more aware of the benefits of obtaining a tax depreciation schedule. This type of report allows investors to minimize their tax and ensure investors can keep more of their gains, therefore bringing the dream of retirement a little closer than otherwise might be the case.
The Brisbane Property podcast hosts an episode with Mike Mortlock who is the Managing Director or MCG Quantity Surveyors. They highlight what is depreciation, why it needs to be considered and what benefits are available to property investors through depreciation when they complete their annual tax return.
Mike shares some valuable guidance on the types of renovation work that delivers maximum depreciation benefits – especially in Queenslander style properties that are so typical in Brisbane. you can watch the episode below.
Our Buyers Agent services include recommendations for property investors when a Tax Depreciation Schedule is needed. For more information about arranging a tax depreciation schedule for a property please visit MCG Quantity Surveyors.
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