I can’t wait to share 5 unbelievable depreciation deductions with you because I know this will give you an edge when investing.
Before I jump into that, I want to give you a quick refresher on what depreciation is, how depreciation deductions can benefit you and what on earth they have to do with the reality show The Block.
So quickly, depreciation is when an asset loses value over time because of wear and tear.
As a building gets older and items within it wear out, the ATO lets you claim depreciation deductions – sometimes in the millions.
So where does The Block come in?
Well BMT Tax Depreciation has provided depreciation assessments for the reality show contestants. In this article, they detail “the top properties with the highest depreciation deductions available”. And one of the couples holds MILLIONS in tax deductions.
But back to you and your investment –
Like the couples from The Block, you want to get the most out of your investment.
With a new investment property, you are able to claim depreciation on the fittings and fixtures in your property. For every dollar that the fittings and fixtures depreciate you can claim back an amount equal to your marginal tax rate.
Tax refunds and other deductions you claim can help you ensure the income from the property outweighs the costs of owning that property. When you achieve this, you have a cash flow positive property.
If your investment property brings in $30,000 a year in rental income,
and all costs associated with the property are $32,000 a year, you would have a negative cash-flow of $2,000 a year from that property. BUT if you claim depreciation deductions, you could get back $5000. So then you would end up with a cash flow positive property – $3000 positive, to be exact.
For the 2016/17 financial year, BMT Tax Depreciation found “an average depreciation claim of $8,845 for their client’s properties.”
The depreciation of a property varies. It could be a few hundred dollars or millions of dollars.
Here are 5 items investors often forget:
- Rubbish bins
- Towel rails
- Smoke alarms
- Garden shed
- Recent renovation
Don’t overlook the small stuff! Maximise your returns each year and become cash flow positive by being strategic about your depreciation deductions.