Reaping the Benefits of Property Depreciation

As property ages, there is obvious damage owing to the ageing process. This results in a decline in property value. The Australian Tax Office (ATO) has a scheme that allows investors to claim the loss in value when they are filing their tax returns. The tax deduction is assessed against the individual's assessable income. This is known as property depreciation. This can help increase monthly income, and the owner can sell their property at an increased price after a certain time.

Property investment is increasing in popularity as a way to gain wealth. Rental depreciation is a concept that may not be well known to property investors, especially those investing in property for the first times. However, overlooking rental depreciation can cost you lots of money in tax deductions, so it's vital to understand and take advantage of this.

Firstly, you need to understand that property depreciation can only be claimed on investment property and not on property that you currently live in. For instance, only income-producing property can be used to claim property depreciation.

Property depreciation is calculated the property's cost is calculated based upon its useful life. Two kinds of rental property depreciation may be claimed: these are known as building allowance and plant and equipment. Building allowance is all the claims made on the hard construction costs of the property under investment. This refers to the brickwork and concrete that are part of the construction of the property. Plant equipment is all the items inside the building — e.g. heating systems, air conditioning, carpets and curtains. 

It is important to hire a quantity surveyor to create an investment property depreciation schedule. The quantity surveyor is a qualified professional that is recognised by the ATO as having the necessary skills to value the items that you wish to claim depreciation on. This is, in fact, a requirement put in place by the ATO to ensure that only genuine property depreciation can be claimed. The fees charged by quantity surveyor can be claimed as part of your tax deductions. 

It must be taken into account that every property is different, and hence the amount claimed on depreciation will also change according to the type of investment property, how old it is, its current condition and the items it contains. This knowledge is highly valuable knowledge that can equip you with the skills to select future properties that will result in ample depreciation benefits.