Part 1: What is tax depreciation?

This month on our blog, we’re taking a look at Tax Depreciation, and more specifically, how claiming tax depreciation allowances ensures investors achieve a greater return on their investment.

Tax depreciation (also known as property depreciation) is a legitimate deduction against assessable taxable income, generated by a residential or commercial investment property.

A property depreciation report (also called a depreciation schedule) sets out all tax depreciation and building write-off claims for a new or existing investment property.
It works by allowing property investors to deduct a portion of the original costs of plant and equipment (such as furniture and fittings) and capital works (such as renovations) on their investment property each financial year, over the effective life of that item.
The Australian Taxation Office recognises that the value of capital assets gradually reduces over time as they approach the end of their effective life. These assets can be written off as a tax deduction – known as depreciation.

If you own an investment property (new or old, large or small), two areas of depreciation are available:
1. Plant and Equipment
2. Capital Works on the Building.
Different items within a rental property have different rates of depreciation based on the effective life of the item.

Depreciation allowances combined with additional negative gearing factors such as interest on a mortgage, repairs and maintenance can help investors reduce their taxable income, pay less tax and improve cashflow.
The savings made can then be redirected to other areas, such as an investment mortgage or other debt reduction.

During August on our blog, we’ll explore some of the Tax Depreciation Questions we’re often asked by our property management clients.

Professionals Real Estate Tax Depreciation by Deppro (a leading property depreciation company) is a specialist service to assist property investors to claim full tax entitlements from their investment properties.

For more information, visit: http://sa.professionals.com.au/resources/tax-depreciation/ or please call 1300 888 489.

 

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