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The importance of an updated tax depreciation schedule

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By Lyndsey Douglas

If you have chosen investment property as part of your financial planning, then you have a lot to learn about the tax benefits available.

Everything from transport costs for inspecting the rental property to certain home insurance costs to legal fees can potentially be deductible at the end of the financial year, if you do it right.

But there is one thing that many people don't seem to be up to date on, and that's their tax depreciation schedule.

But there is one thing that many people don't seem to be up to date on, and that's their tax depreciation schedule. In fact, one study from Raine & Horne indicated that up to 80 per cent of landlords weren't getting everything they could out of this important document.

So what exactly is it, and how does it help you out?

Staying on schedule

Depreciation is the process by which your investment property drops in value over time. Wear and tear occurs to your real estate over time, and when you've bought it for investment purposes you can actually claim this back against your income.

It is split into two different types of depreciation: building allowance, and plant and equipment. Building allowance is the bricks and mortar of the property itself, while plant and equipment refers to appliances, furniture, curtains and other items within the home.

However, you need to be able to identify just how much each of these parts of the home have depreciated in value before you can make any claims. This is the purpose of a tax depreciation schedule - it values everything in your investment property, as well as how much it will decline by over time. This has to be done by a quantity surveyor, who draws up depreciation timelines for every part of the home. This gives you a legally sound depiction of what you can claim.

Most people buying investment property do this once the transaction is settled - so what are they missing out on?

Making the most of the property

According to Angus Raine, chief executive officer and Raine & Horne, landlords could be able to claim back anywhere between 10 per cent and 40 per cent of an items value through depreciation. This can work out to thousands of dollars, which many people aren't taking advantage of.

Landlords could be able to claim back anywhere between 10 per cent and 40 per cent of an items value through depreciation.

Mr Raine adds that outdated depreciation schedules are part of the problem, as then landlords don't have the right data to accurately gauge the potential benefits. But how much can it be overall? BMT, a company of quantity surveyors, told R&H that a brand new piece of residential real estate worth $500,000 might yield cumulative benefits of $40,000 over five years!

How to find the right property

Because depreciation is all about the diminishing value of the property, a newer home is more likely to yield good tax benefits. After all, if you buy a fixer-upper with your home loan then there might not be much more base value to actually lose!

So if property investment is on your financial planning radar, a new home might be the best bet for depreciation returns. However, this isn't the only way to benefit through buying real estate. There is positive cashflow, capital gains, not to mention the tax deductions we mentioned at the top of this piece - and more. 

But this is a lot of paperwork, and in some cases, quite costly too. Getting a tax depreciation schedule drawn up can cost in excess of $600, and these are deductions, meaning you have to spend the money in the first place with many tax breaks. 

When you want to work the the finer details of your financial planning, make sure to speak to the team here at Yellow Brick Road. We have local representatives across the country who are ready to help you get ahead with your wealth management.

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