Property depreciation is the natural wear and tear of a building and its assets over time. Investors and business owners alike can claim depreciation on income-producing properties as a tax deduction each financial year. <\/p>\n\n\n\n
This lucrative deduction is available for all eligible property types and assets. Residential examples include: <\/p>\n\n\n\n
- Houses<\/li>
- Units<\/li>
- Studios<\/li>
- Townhouses<\/li>
- Duplexes. <\/li><\/ul>\n\n\n\n
Depreciation maximizes cash, despite the property\u2019s age<\/strong><\/p>\n\n\n\n
Both older and new properties can benefit from depreciation claims. But there are several factors that can impact the amount of depreciation claimable. <\/p>\n\n\n\n
- Depreciation for older properties <\/strong><\/li><\/ul>\n\n\n\n
The easiest way to understand depreciation for \u2018older\u2019 properties is to think of those that are well-established and usually purchased second-hand.<\/p>\n\n\n\n
Many myths surround depreciation and older properties \u2013 the main being that depreciation isn\u2019t available at all. But this isn\u2019t the case. <\/p>\n\n\n\n
Depreciation on capital works, which refers to the property\u2019s structure and fixed assets, can be claimed for up to forty years where construction commenced after 15 September 1987. <\/p>\n\n\n\n
This means if the older property were constructed before this date, no capital works deductions would be available on the original structure. But for works after this date, deductions could be claimed. <\/p>\n\n\n\n
For example, let\u2019s look at a property that was constructed in 1980 and had a new roof installed in 2000. The current and possible future owners can\u2019t claim capital works deductions on the original structure, but they can claim on the roofing until 2040.<\/p>\n\n\n\n
The other category of depreciation is plant and equipment. This covers the easily removable and mechanical assets of a property like floor coverings, hot water systems, furniture, and smoke alarms. <\/p>\n\n\n\n
Legislation changes made in 2017 mean owners of second-hand properties purchased after 9 May 2017 can\u2019t claim depreciation on the property\u2019s existing plant and equipment assets. For example, if there\u2019s a carpet already installed in the property that holds depreciable value, the new owner can\u2019t claim it. <\/p>\n\n\n\n
But this legislation change doesn\u2019t apply to eligible capital works and new plant and equipment assets that the owner purchases for the property. Using the same example above, if the owner decides to remove the existing carpet and replace it with vinyl flooring, they can claim all available deductions on the vinyl. <\/p>\n\n\n\n
- Depreciation for new properties<\/strong><\/li><\/ul>\n\n\n\n
We define new properties as those that have been recently built but never lived in. Depreciation is often much more straightforward for this group. <\/p>\n\n\n\n
Investors of brand-new property can: <\/p>\n\n\n\n
- Take advantage of capital works on the original structure for the entire forty-year period. <\/li>
- Claim depreciation on all plant and equipment assets installed. This is possible because brand-new plant and equipment assets aren\u2019t impacted by the 2017 legislation changes. <\/li><\/ol>\n\n\n\n
The proof is in the numbers <\/strong><\/p>\n\n\n\n
Still skeptical? The table below shows the first-year depreciation deductions for new and second-hand properties with similar purchase prices.\u00a0<\/p>\n\n\n\n
- Depreciation for new properties<\/strong><\/li><\/ul>\n\n\n\n
- Depreciation for older properties <\/strong><\/li><\/ul>\n\n\n\n
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