Buying your first home can be expensive. Between the price of the home itself, legal fees, engineer costs, realtor expenses and everything else that goes into buying a home, the costs can rack up quickly. The good news is that if you are buying your first home for income-producing purposes, you can gain some of that money back by creating a property depreciation schedule.
In the same way that you can claim for wear and tear on a vehicle that you purchase in order to make money, you can also claim for depreciation on an investment property against your taxable income at the end of the year. Many seasoned property investors will take depreciation into account before committing to purchasing a new property. However, even if this is the very first home you are buying for income-producing purposes, you can significantly increase your bottom line at the end of the year if you take the time to understand depreciation.
Let’s take a look at depreciation and what it matters for first-time homebuyers getting started in the world of property investment.
What Exactly Is Property Depreciation?
Property depreciation is essentially a tax break that gives property investors an opportunity to offset the decline in value of their property from their taxable income at the end of the year. The law in Australia enables investors to receive a tax break on the decline in value of the building itself, items permanently attached to the property, the value of plants and any additional assets found in the property such as large appliances, carpets, curtains and blinds.
Properties Eligible To Claim Depreciation
Any residential property that was constructed after July 1985 can claim for both a building allowance and plant and equipment allowance. On the other hand, if your property was built before this date, then you will only be able to claim depreciation for plant and equipment. While this can still be a significant amount, it pays to keep this in mind when you are buying your first home for investment purposes. Choosing a newer property will allow you to claim more in deductions, reducing your taxable income further come tax time.
Preparing Your Depreciation Report
Any property that was constructed after 1985 cannot have an accountant, realtor, valuer or solicitor value the construction costs. The Australian Taxation Office (ATO) outlines that the only appropriately qualified professionals to determine construction costs in homes built after 1985 are quantity surveyors. As construction costs and depreciation require specialised expertise, quantity surveyors are the best people qualified to accurately determine construction costs while maximising the client’s financial position when it comes to their property investment.
Create A Property Depreciation Schedule
To maximise your profits from your first residential property investment, you need to ensure that you create a property depreciation schedule. A schedule can take two to three weeks to complete, assuming that the quantity surveyor can complete the inspection right away. Search for a property depreciation calculator online to work out how much you could save and get the process started of creating a property depreciation schedule started without delay.
Maximize The Return On Your First Residential Property Investment
Buying your first home for income-making purposes is an exciting moment in your property investment journey. To ensure that you get the best possible return on your investment, it’s important that you take the time to understand depreciation. Creating a property depreciation schedule for your property can help you to save money at the end of the year, resulting in more profits from your first residential investment property.