How to maximise tax depreciation of an investment property

While many property investors consider location, purchase price and tenanting ability when contemplating an investment property purchase, depreciation is often overlooked as an important factor.

Depreciation can help unlock the cash flow potential within an investment property, often resulting in thousands of additional dollars for the investor each financial year.

Considering the following factors will help property investors understand how property tax depreciation can change their cash flow position:

  • The age of the property: Both new and older properties will attract some depreciation deductions, although generally, newer properties have newer assets and a higher un-deducted value resulting in higher depreciation.
  • The type of property: Units and townhouses that are part of a strata or community title can be entitled to claim common property benefits in addition to the unit’s depreciation benefits.
  • The amount of common property: Common property items within a strata or community title complex such as driveways, fire equipment, lifts and swimming pools are included in the depreciation report. Usually, more common property results in higher depreciation claims.
  • The amount of plant and equipment: Plant and equipment includes items that are easily removed from the property, or not permanently fixed to the structure. Some examples are light shades, stoves, air conditioning systems, blinds and carpet. These items can be depreciated at a higher rate than the building and add significantly to the depreciation claim. More plant and equipment generally means higher depreciation claims earlier.

Different asset types will affect the depreciation deductions available. For example, when looking at flooring worth about $2000 the different types have a very different result:

The same applies with air conditioning. If a property owner has $5000 worth of cooling, these would be the expected deductions:

Figures based on Diminishing Value method of depreciation using current legislation.

Always consult a depreciation expert about an investment property’s depreciation entitlements. Taking full advantage of the available tax benefits on an investment property can improve a property owner’s cash flow each financial year. BMT Tax Depreciation offer obligation free advice about a property’s depreciation potential.