Tax Depreciation



Tax depreciation can be a tricky subject – but gaining a good understanding of it could help you maximise the profit you receive from your rental properties for years to come. Many investors mistakenly believe that their older properties are no longer eligible for tax depreciation deductions – but there are in fact still various cases when you can make a claim.

 

There are two types of tax depreciation

Older properties still have a lot to offer in terms of depreciation relief.

To understand how older properties can still be eligible for tax depreciation relief, it’s key to know about the two different types of depreciation:

 

  • Capital Works Deduction – This deals with the permanent, structural details of the property – bricks and mortar. Aspects considered under this category include walls, roofs, flooring and brickwork.
  • Plant and Equipment Deduction – This refers to removable items – such as water heating systems, appliances, blinds and carpets.

 

This is where the age of your property becomes relevant – as ‘younger’ properties are eligible for assessment for both types of depreciation. Older properties can only be considered for Plant and Equipment depreciation.

 

Age matters

It’s important to get your dates straight if you’re considering the purchase of an older property – as just a few years either side could greatly influence the amount of depreciation relief you can expect to receive. You can only claim on Capital Works depreciation if your property was built or has been renovated after the 15th September 1987. This lets you claim 2.5% of the overall building costs for up to 40 years. So if your property was built in 2008 at a structural cost of $400,000, you’ll receive a $10,000 deduction from your tax bill every year until 2048. This is important to bear in mind when purchasing, as two properties built just a couple of years apart could deliver very different outcomes for you financially.

 

What if I have a property that was built before 1987?

Commonly investors wonder whether an older property is still eligible for depreciation relief. The short answer is yes – and whilst newer properties undoubtedly provide higher value depreciation older properties still have significant tax benefits attached. You’ll certainly be eligible to claim under Plant and Equipment – but Capital Works depreciation relief may also be possible if your property was renovated post 1987. This also applies if you’re planning on carrying out renovation works on an older property – if you do, you could have years of depreciation gains ahead of you. Don’t forget that Plant and Equipment depreciation could deliver significant tax savings – so always opt to keep items of value for as long as possible and don’t be hasty to throw away or replace.

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