Regardless of whether you purchase a new or established home, you can benefit from depreciation benefits. While both property options have their advantages, with established homes often offering better locations and new homes needing fewer repairs and renovations, the depreciation you can claim in higher on a new home.
How Depreciation Works
Depreciation is the rate by which the value of your property decreases due to normal wear and tear. When you claim for depreciation, you can use it to lower your overall taxable income, which can be especially important if you are a property investor as it will help increase your profits.
Overall, there are two types of depreciation you can claim: plant and equipment, and building allowance. The first one refers to depreciation on the value of things found inside your property, which may include appliances and even carpets. Meanwhile, building allowance is depreciation on the value of the building itself.
You can claim depreciation on both new and old properties. With a new property, you can claim deductions for up to 40 years, and with an established home you can continue to claim depreciation up until the property reaches 40 years of age.
Knowing How Much Depreciation You Can Claim
To determine the amount of depreciation you can claim, you’ll need to refer to your depreciation schedule. This is a document prepared by a quantity surveyor based on their assessment on the value of your property and its contents. Ensure that you use a qualified quantity surveyor when doing this. Also make sure that they are affiliated with recognised organisations like the Australian Institute of Quantity Surveyors.
When a quantity surveyor assesses the value of your property and its contents, they should document everything carefully because you can use these as proof if, and when, the ATO decides to audit you. So it helps for them to have extensive notes and photographs of the items for which you can claim depreciation.
While a quantity surveyor will charge a fee for their services (the actual value of which depends on your type of property), the good news is that the payment is fully tax-deductible.
Overall, depreciation can be claimed on both a new or established home and will primarily help you lower your overall taxable income. Speak to a Launch Finance broker today about getting a loan for your home or investment property.