How does claiming depreciation benefit property investors?

Depreciation is a non-cash expense that reflects the wear and tear of an asset over time. In the context of property investment, it typically applies to the building structure (capital works deduction) and the plant and equipment within the property.

Often overlooked, property depreciation is the second largest tax deduction after investment loan interest, and as a non-cash deduction, investors don't have to spend money to claim it.

Here's how claiming depreciation can benefit property investors:

• Tax deductions - Property investors can claim depreciation as a tax deduction, allowing them to offset their taxable income. This, in turn, reduces the amount of income subject to taxation.
   
• Increased cash flow - Since depreciation is a non-cash expense, property investors can benefit from increased cash flow. This is particularly useful in the early years of property ownership.
   
• Property valuation – Depreciation can affect the overall valuation of a property. While land usually appreciates over time, building and their components may depreciate. A lower depreciation value may result in lower property taxes.
   
• Renovation and improvement – If work is carried out on an investment property you may be eligible to claim depreciation on the capital works and eligible plant and equipment

How do I claim property depreciation?

The easiest way to claim depreciation on your rental property is to get a tax depreciation schedule prepared for your property.

TaxAssist can arrange for a Tax Depreciation Schedule which covers all deductions available over the lifetime of a property to ensure you maximise your cash flow. The cost of a Tax Depreciation Schedule is also 100 per cent tax deductible.

What information is needed to complete a tax depreciation schedule?

Make contact with your local TaxAssist Accountant and they will ask you for the name on the property contract, property address and purchase information to arrange the depreciation schedule.

Our valuation partners can contact the property manager or tenant directly to arrange access to the property, and a property inspection is conducted where all of the depreciable assets will be noted. The original construction cost of the property as well as any renovations will be estimated and recorded by the property inspector.

Once the tax depreciation schedule has been completed, you will be sent a copy and your TaxAssist Accountant can apply the depreciation deduction to this year's Tax Return.

Next steps

Call us on 1300 513 332 or contact us here if you'd like further information on tax depreciation schedules.

Date published 23 Jan 2024 | Last updated 23 Jan 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.