5 Tips to Take Advantage of Real Estate Property Depreciation
Investing in rental property can prove to be a smart financial move. For starters, a rental property can provide a steady source of income while you build equity and the property appreciates. There are also tax benefits like deducting your rental expenses from any rental income you earn, thereby lowering your tax liability. Depreciation is the key to increasing cash flow on a residential property.
Depreciation is something that will help your bottom line come tax time. Just like you claim wear and tear on a car purchased for income producing purposes, you can also claim the depreciation of your investment property against your taxable income. Anyone who purchases a property for income-producing purposes is entitled to depreciate both the items within the building and the cost of the building itself – against their accessible income.
Below are some tips you can use when depreciating your real estate property:
No property is too old
An investment property does not need to be new. Both new and old properties attract depreciation deductions. One common myth is that older properties will attract no claim. It is worth making an enquiry about any property.
Claim renovations completed by previous owners
Any improvements completed to a property by a previous owner can be included in your depreciation schedule. Renovations completed by previous owners are not always obvious, for example new plumbing, water proofing, electrical wiring or a pergola. As long as the work was completed within the qualifying dates, the owner will be entitled to a capital works deduction.
All owners can claim plant and equipment depreciation
Plant and equipment assets are the mechanical or easily removable fixtures and fittings found in an investment property. Examples include hot water systems, door closers, blinds, air conditioning systems, carpets, garbage bins and smoke alarms. Depreciation claims for these items are not restricted by date.
Get the service of an experienced quantity surveyor
Quantity surveyors are qualified to estimate construction costs for depreciation purposes and are one of a few select professionals who specialize in providing depreciation schedules. Engage in a firm that has been around for at least 10 years. They will have the necessary experience to analyse your property correctly. A thorough site inspection needs to be undertaken by a depreciation specialist as part of the process of completing a depreciation schedule.
Furnish your property
Furnishing your house is another way to increase your property depreciation deductions as it attracts higher depreciation rates. In addition to your other depreciation opportunities furniture really can enhance your overall claim. But furnishing your investment is not necessarily the best option for all properties and locations. It is better suited to smaller one or two bedroom apartments in transient areas that attract short-term tenants and holiday rentals.