Before walking away from purchasing a first or next investment property, make sure to crunch the numbers correctly. That next bargain may actually be affordable if property depreciation is claimed.
Astute investors will usually consider the potential rental return of the property, the property’s location in proximity to local services and facilities, local employment drivers and historical growth of properties within the area.
They should also work out the tax deductible costs and other deductions involved in owning the property such as property management fees, rates, interest, repairs, maintenance and property depreciation.
These deductions add to the investor’s net cash return and every deductible dollar comes back to the owner at their marginal tax rate.
More often than not, investors fail to consider the financial benefit of claiming depreciation prior to making their purchase. The following example shows how one property investor identified an additional yearly cash flow of $4,992 from property depreciation.
The property investor was considering purchasing a ten year old house priced at $560,000. They did some preliminary research and asked their Property Manager for a rental appraisal of the property, which resulted in an expected rental income of $530 per week, or $27,560 per year.
The investor was also able to work out an estimate of the costs involved in owning the property. Expenses including interest rates, property management fees, rates, repairs and maintenance costs came to a total of $36,060 per annum.
They contacted BMT Tax Depreciation for a free assessment of the likely depreciation deductions they could expect from the property and found that they would be able to claim approximately $13,500 in depreciation in the first full year.
The following table provides a summary of these costs and the investor’s annual position, depending on whether or not depreciation is claimed.
Without claiming depreciation, the property investor would experience a loss of $103 per week during the first year of owning the property. By claiming depreciation, the weekly cost is reduced to $7, saving them $96 per week or $4,992 in the first year of ownership.
An investor who crunches their numbers prior to making a purchase will gain a better perspective on the affordability of the property and their future cash flow position. Once they purchase the property, a specialist Quantity Surveyor can be engaged to prepare a property depreciation schedule to ensure depreciation deductions are accurate and maximised.
BMT Tax Depreciation offer a number of ways for investors to obtain an estimate of the depreciation deductions that will be available for any investment property they are considering purchasing.
The BMT Tax Depreciation Calculator is available online or as a mobile app for iPhone or Android. Investors need to know only a few details about a prospective property in order to calculate a quick estimate. To use the calculator online, investors can scan the following QR Code.
Alternatively, investors can call BMT Tax Depreciation for a free over the phone estimate of potential deductions.
Article Provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is the Managing Director of BMT Tax Depreciation. Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.