Depreciation is the property investors secret weapon. This can make a negatively geared property positive cash-flow. Giving you tax deductions without you needing to fork out money for that financial year.
When you buy an investment property one of the first jobs you should do once the property has settled is organise a quantity surveyor to come do a depreciation schedule for you. At a cost of about $600 this is a worthwhile investment. A depreciation schedule will outline the amount of money you can claim back on tax for the life of the investment property.
There are 2 types of depreciation.
The first is depreciation for plant and equipment.
The government realises that fixtures and fittings in your home have a life span and will eventually need replacing. Due to this they let you claim back the costs of the items over the lifespan of the item. An example of this is carpet, it has a lifespan of 10 years, so they let you claim 17% of that cost back per year. The table below outlines the lifespan and depreciation rates for different household items to give you an idea.
|Item||Effective Life in Years||Depreciation Rate if purchased pre 27/2/92||Depreciation Rate if purchased post 26/2/92|
|Curtains and drapes||7||18||20|
|Furniture and fittings||15||9||13|
|Hot water service||20||6||13|
|Linoleum and similar floor coverings||10||12||17|
The second type of depreciation is building depreciation.
This allows you to claim back 2.5% of the cost of the building for 40 years! This is for any properties built after 15 September 1987.
Depreciation is the icing on the cake. If you would like to read more about depreciation read an article from Smart Property Investment Magazine which Profolio’s founder, Sarah Rogers was a part of.