Do you know about the way that depreciation can help to increase the return on property investment? Yes that’s right! Even though depreciation implies that the value of your asset is going down, this can still save you money! The important thing to realise is that when it comes to property, the value rarely goes down. Unless you buy at an inflated price, or suffer a localised downturn, most properties will appreciate over time. The time period for appreciation can vary greatly, so endeavour to become well educated. Diligence and unemotional analysis are amongst the traits of successful property investors. So how does investment property depreciation help the property investor?
Before we start, however, it’s important to note that this is not financial, taxation or investment advice. We recommend checking with your taxation accountant and financial advisors for information that suits your personal circumstances.
The tactic is to claim on income tax
One of the ways to maximise the return on property investment is to make sure you are aware of all the potential tax claims against investment property. When you earn income from a rental property, most of the earnings are needed to cover the expenditure. Expenditure goes on rates, taxes, insurance, maintenance and of course the interest payments on the mortgage. However, sometimes these costs can be higher than the income. This is known as negative gearing, and it can seem a little daunting at first. But never fear! There can be some advantages to owning an investment property which is negatively geared. In order to meet the payments and costs of maintaining an investment property, you will need to be able to sustain the negative amount from other means of income.
But the amount of negative gearing can be tax deductible from your income. This means that at the end of each financial year, you can claim back the tax deductible portion from the tax department. This is where you will need to locate a property-wise tax accountant. By ‘property-wise’ we mean ideally a tax accountant who invests in property themselves. Ideally they will specialise in tax returns for property investors. That way they will know the applicable tax laws and know what you can and can’t claim. Each individual has specific circumstances. We can only give the general guide here and suggest you find a specialist tax accountant to help you!
Investment property depreciation is tax deductible also
Not only is the amount of the negative gearing deductible, but so is the depreciation of the asset. So the depreciation of the asset is usually calculated at something like 4% of the building cost over the life of the investment property. So if the building cost $100, 000 to build, then you are able to claim a depreciation of $4,000. Not only is depreciation calculated on the building, but also on some of the fittings within the investment property. For example, the floor coverings, light fittings, window coverings, and air conditioners are all claimable. When you think about it, all of these property fixtures will need to be replaced over time. So it’s logical and it’s also a good way to save up for the replacement.
Investment property depreciation varies greatly depending upon the age and nature of the property. When a property changes hands (is sold), the investment property depreciation situation changes again.
Find a good taxation specialist for advice
As with any financial advice, you need to consult a specialist. We recommend that you check the details any investment property purchase with a qualified professional. When it comes to buying a rental property, you can’t be too cautions. It pays to seek professional advice to maximise the return on property investment. There are many variables that are important to finding the best investment property.
Of course, you need an expert structural inspector, you need a property conveyancer, you need a qualified pest inspector. To ensure that you can claim all of you tax entitlements, it is always good to use a tax accountant who understands how to maximise the return on property investment. To find a good financial advisor, ask them to discuss the list of depreciable assets that are applicable to your investment property. Find a tax accountant or financial advisor who is willing to work for you and to maximise the return on your investment.
Engage a good property manager
Not least of all it is critical to make sure that you choose the best property manager. We recommend that you choose a professional property manager to look after your investment. This is to make sure that your rental property is well maintained, professionally marketed and closely managed. Here at Position One, we take the time to understand the needs of every property owner. Whether our client is a property investor or are leasing out their family home, it’s equally important to us. Either way we work smart to understand how we can help you to maximise the return on your property.
Here at Position One Property, we live and breathe love real estate. To meet you and get to know you, we offer an obligation free rental property appraisal. We can inspect the property and provide an accurate rental assessment, condition appraisal. Although we are not able to advise as a taxation specialist would we can discuss in general terms the potential for investment property depreciation. After all, when you buy a rental property, you certainly need to know how to get on the right track to maximise the depreciation on your investment property.