Depreciation is a key element of your investment property strategy.
While depreciation tax breaks are higher on newer properties, they’re available for all types of investment properties.
property was built after 15 September 1987 you’d be able to claim 2.5%
depreciation each year until it was 40 years old.
So, if a
property originally cost $100,000 to build in 1990, you could claim $2,500 each
year until 2030.
can claim tax breaks on depreciating assets no matter how old the property is.
like carpets, curtains, bathroom fittings, dishwasher and washing machines all
qualify for depreciation as they age.
The Australian Tax Office (ATO) lists all the items you can claim on
and how long they should last – referred to by the ATO as the item’s ‘effective
life’. For instance, a carpet should last 10 years while a kitchen stove should
announced in the 2017 Budget, your entitlement to depreciation will depend on
when you acquired the property.
properties that were acquired before 9 May 2017 (including contracts entered
into before that date), and plant and equipment that form part of the property,
investors can claim depreciation based on a surveyor’s assessment of the
asset’s remaining life and value.
properties acquired after 9 May 2017, depreciation only applies for:
- Costs on plant
and equipment you paid for (e.g. new carpets or fridge); or
- Plant and
equipment included as part of the new property.
owners of the property won’t be able to claim deductions for plant and
equipment bought by the property’s previous owner.
have two options if you claim this tax break:
- Prime cost
both result in the same claimable amount, when you get it will differ.
Prime cost method
gives you the same annual tax deduction for the item’s effective life.
Diminishing value method
is where you get higher claims earlier in the item’s effective life, and lower
ones later. Most investors choose this as they receive higher tax breaks
sooner. Your accountant will advise which method is best for you.
more information, the ATO has a guide
to what you claim on rental property expenses.
Tuesday, 26 November 2019