Understanding tax depreciation schedules

Buying an off-the-plan or brand new investment property means you can secure a quality asset that will provide you with an outlet for capital gains in the future. 

Aside from generating you wealth, investment properties also give you the opportunity to access certain tax advantages. One of the most beneficial to you as an investor is depreciating assets. 

What is tax depreciation?

Your property is a physical asset. While this means you can visit your property and make alterations to it, it also means it can depreciate over time, too.This allows you to claim the depreciation of your rental home against your taxable income amount. 

The Australian Taxation Office (ATO) defines a depreciating asset as "something that has a limited effective life and can reasonably be expected to decline in value over the time it is used." But what kinds of assets does this include? 

Some examples from the ATO of assets that can depreciate include items like stoves, dishwashers, washing machines, freestanding furniture and others. Should your rental property have these items, you can claim a deduction in the value of them over time.

You can also claim immediate tax deductions for depreciating assets if they're under $300. For example, if you bought a new couch at $250 for your rental property, you can claim it as an immediate deduction. 

Aside from this, there's also depreciation for the construction of the building itself. This includes things like concrete and brickwork in your rental property. 

Getting a tax depreciation schedule

In order to comply with the ATO, you'll need to have a Quantity Surveyor come and look at your property. This professional can give you a detailed tax depreciation schedule for your assets, which can then be passed on to the ATO and will become the basis for claiming your deductions. This service comes at a fee, but fortunately it's a tax deductible expense!

This schedule identifies all the assets that will depreciate and will even tell you how much you can deduct at the end of each financial year in your tax return. 

Whether you're a first- or second-time investor, tax depreciation can be a hard concept to grasp. This is when it's wise to get some expert level property education and also assistance from an accountant to ensure you're maximising your investment.

Claiming depreciation in your tax return can not only reduce the amount of income that you pay tax on each year, it can also help you have better cash flow during the financial year. This can then go towards maintaining your property or even expanding your current investment portfolio.