Jointly owned investment properties and depreciation

Housing values are rising, and more people are buying to take advantage of current government stimulus incentives. This is making it harder to buy property in some areas, leading investors to look for  more affordable ways to enter the market or grow their portfolios.

Owning an investment property with someone else is one way to do this. But how does this work and what are some key things to consider before doing it?

What is a jointly owned investment property?

In simple terms, a jointly owned investment property is when one property is owned by two or more people. The parties in this type of arrangement can be either ‘joint tenants’ or ‘tenants in common’.

  • Joint tenants: Owners hold equal shares in the property. For example, 50:50.
  • Tenants in common: Owners hold unequal shares in the property. For example, 70:30.

Benefits and key considerations

Who you own an investment property with is ultimately up to you – it can be a friend, family member or existing investment partner.

No matter the person you choose, there are some key benefits and considerations to keep in mind when choosing to invest with someone.

Benefits

  • Higher borrowing power

Your lender will be able to take into account all parties’ savings and regular income streams. When weighing up the risks, this can result in you having higher borrowing power compared to a single applicant.

  • Lower upfront costs

Along with higher borrowing power, comes splitting the upfront costs such as stamp duty, legal fees, inspection fees and much more. This can help you and your investment partner to get on the front foot early.

  • Splitting ongoing costs

Upfront costs are just one part of the equation. The ongoing costs of owning an investment property can be both high and unexpected. Common examples include management fees, insurances, repairs and maintenance, rates and taxes.

Splitting these ongoing costs throughout the property’s lifecycle helps make it more affordable in the long run.

  • Split depreciation deductions

Splitting depreciation deductions may seem like a downside of investing in a jointly owned property, but it can actually work in your favour and boost your deductions earlier.

Split tax depreciation schedules can give you access to accelerated depreciation through low-value pooling and immediate deductions – but more on this later.

Considerations

  • Choosing the ‘right’ investment property

Investing strategies may differ between individuals, so this can make it hard to find the ‘right’ jointly owned investment property.

This is something to be discussed early in the piece when you are deciding on an investment partner. For example, if you favour short-term capital growth over high rental return and your partner favours the opposite scenario then it mightn’t be the best investmentfit.

  • Difficulty when it comes to selling or making improvements

Selling or making improvements to a property are big decisions, even when just one owner is involved. Adding multiple to the decision makes it even harder, but negotiations and a solid plan to begin with is key to making these decisions easier when the time comes.

  • Disagreements

There are bound to be disagreements when it comes to the managing the property and making choices for it. This is where it’s important to have an experienced property manager and accountant on hand to point you in the best direction.

How does depreciation work for these types of investments?

Depreciation is the natural wear and tear of a property and its assets over time. Only owners of income-producing property can claim this depreciation as a tax deduction.

To claim depreciation of a jointly owned investment property, a split schedule is required to ensure all owners claim the most deductions compliantly. This means deductions such as capital works on the property’s structure will be apportioned. It also means accelerated depreciation can be generated through the low-value pool and immediate deductions. The scenarios below demonstrate how this works.

Scenario one: jointly owned property and immediate deductions

Key fact – the immediate deduction is only available for assets that cost less than $300.

Mia and Jessica own an investment property as joint tenants. They purchase a new dishwasher for $550.

Using a split depreciation schedule, the dishwasher cost is apportioned to $275 each. This allows Mia and Jessica to deduct it immediately in the same financial year.

If they hadn’t arranged a split schedule, they would only be able to depreciate the dishwasher at a maximum rate of 25 per cent, or $137.50, with the diminishing value method.

Scenario two: jointly owned property and low-value pooling

Key fact – assets valued at less than $1,000 can be placed in the low-value pool; accelerating depreciation to 18.75 per cent in the first year and 37.5 per cent in following years.

Mia and Jessica also purchase a gas oven valued at $1,800. Their split schedule allows them to apportion the oven to $900.

Claiming the maximum depreciation deductions possible is crucial to the success to your jointly-owned investment property. BMT Tax Depreciation provide split schedules to ensure all parties involve claim the most possible. To learn more, contact their team on 1300 728 726 or Request a Quote.

Housing values are rising, and more people are buying to take advantage of current government stimulus incentives. This is making it harder to buy property in some areas, leading investors to look for  more affordable ways to enter the market or grow their portfolios.

Owning an investment property with someone else is one way to do this. But how does this work and what are some key things to consider before doing it?

What is a jointly owned investment property?

In simple terms, a jointly owned investment property is when one property is owned by two or more people. The parties in this type of arrangement can be either ‘joint tenants’ or ‘tenants in common’.

  • Joint tenants: Owners hold equal shares in the property. For example, 50:50.
  • Tenants in common: Owners hold unequal shares in the property. For example, 70:30.

Benefits and key considerations

Who you own an investment property with is ultimately up to you – it can be a friend, family member or existing investment partner.

No matter the person you choose, there are some key benefits and considerations to keep in mind when choosing to invest with someone.

Benefits

  • Higher borrowing power

Your lender will be able to take into account all parties’ savings and regular income streams. When weighing up the risks, this can result in you having higher borrowing power compared to a single applicant.

  • Lower upfront costs

Along with higher borrowing power, comes splitting the upfront costs such as stamp duty, legal fees, inspection fees and much more. This can help you and your investment partner to get on the front foot early.

  • Splitting ongoing costs

Upfront costs are just one part of the equation. The ongoing costs of owning an investment property can be both high and unexpected. Common examples include management fees, insurances, repairs and maintenance, rates and taxes.

Splitting these ongoing costs throughout the property’s lifecycle helps make it more affordable in the long run.

  • Split depreciation deductions

Splitting depreciation deductions may seem like a downside of investing in a jointly owned property, but it can actually work in your favour and boost your deductions earlier.

Split tax depreciation schedules can give you access to accelerated depreciation through low-value pooling and immediate deductions – but more on this later.

Considerations

  • Choosing the ‘right’ investment property

Investing strategies may differ between individuals, so this can make it hard to find the ‘right’ jointly owned investment property.

This is something to be discussed early in the piece when you are deciding on an investment partner. For example, if you favour short-term capital growth over high rental return and your partner favours the opposite scenario then it mightn’t be the best investmentfit.

  • Difficulty when it comes to selling or making improvements

Selling or making improvements to a property are big decisions, even when just one owner is involved. Adding multiple to the decision makes it even harder, but negotiations and a solid plan to begin with is key to making these decisions easier when the time comes.

  • Disagreements

There are bound to be disagreements when it comes to the managing the property and making choices for it. This is where it’s important to have an experienced property manager and accountant on hand to point you in the best direction.

How does depreciation work for these types of investments?

Depreciation is the natural wear and tear of a property and its assets over time. Only owners of income-producing property can claim this depreciation as a tax deduction.

To claim depreciation of a jointly owned investment property, a split schedule is required to ensure all owners claim the most deductions compliantly. This means deductions such as capital works on the property’s structure will be apportioned. It also means accelerated depreciation can be generated through the low-value pool and immediate deductions. The scenarios below demonstrate how this works.

Scenario one: jointly owned property and immediate deductions

Key fact – the immediate deduction is only available for assets that cost less than $300.

Mia and Jessica own an investment property as joint tenants. They purchase a new dishwasher for $550.

Using a split depreciation schedule, the dishwasher cost is apportioned to $275 each. This allows Mia and Jessica to deduct it immediately in the same financial year.

If they hadn’t arranged a split schedule, they would only be able to depreciate the dishwasher at a maximum rate of 25 per cent, or $137.50, with the diminishing value method.

Scenario two: jointly owned property and low-value pooling

Key fact – assets valued at less than $1,000 can be placed in the low-value pool; accelerating depreciation to 18.75 per cent in the first year and 37.5 per cent in following years.

Mia and Jessica also purchase a gas oven valued at $1,800. Their split schedule allows them to apportion the oven to $900.

Claiming the maximum depreciation deductions possible is crucial to the success to your jointly-owned investment property. BMT Tax Depreciation provide split schedules to ensure all parties involve claim the most possible. To learn more, contact their team on 1300 728 726 or Request a Quote.

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