Depreciation claims for rental properties tend to be a bit of a problem area for many taxpayers. This is partly because claims for buildings can be easily overlooked – depreciation doesn’t show up in the list of cash expenses for the year – and partly because working out how much can be claimed is comparatively complex.
Depreciation limited from 9 May 2017
A limitation of rental property depreciation claims has been introduced with effect from 9 May 2017. It applies to assets acquired from that date. Depreciation deductions are no longer available for ‘previously used’ depreciating assets used in earning income from residential premises used for residential accommodation. “Previously used” essentially means that the depreciation deduction is only available to the taxpayer who bought and used a new asset in a tax-deductible situation.
Building Allowance Depreciation Claims
The following article from realestate.com.au describes rental property claims for depreciating buildings, and provides a handy visual summary of the way property depreciation claims are set up, which varies according to the age of the house, or more accurately the year(s) when the relevant costs were incurred.
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. Via realestate.com.au
ATO Tax Ruling 97/25 deals with requirements for obtaining a deduction under Division 43 of the Income Tax Assessment Act 1997 for assessable income producing buildings and other capital works.
The ruling provides that Quantity Surveyors are properly qualified to make the appropriate estimate of the construction costs, where those costs are unknown.
Don’t Ignore Depreciation Opportunities Outside
Depreciable assets on the outside of an investment or rental property are often and easily-overlooked for tax deductions.
An article from Bradley Beer at sourceable.net includes examples which show that an additional first-year tax deduction of nearly $5,000 would be possible based on the cost assumptions used for a typical property.
The yard is often overlooked when considering depreciation deductions on an investment property, something smart investors should be aware of. Via sourceable.net
Many taxpayers may still be unaware that expenditure receipts for the costs of the depreciable assets are not necessary for this type of tax claim. Using a licenced valuer, cost estimates can be made which are totally acceptable for tax purposes.