What You Need to Know About Depreciation When You Own a Rental Property
Posted on: 23 February 2023
If you are a rental property owner, it's important to understand how depreciation works and how it affects your finances. Depreciation is a non-cash deduction on the income of rental property owners and can help reduce the amount of tax you need to pay. What do you need to know about this procedure, and who should carry out the work for you?
What Is Depreciation?
Depreciation is an allowance that permits rental property owners to deduct part of the cost of purchasing and improving their properties from their taxable income over time. This means that if you own a rental property, you may be able to lower your taxable income by claiming depreciation deductions on certain assets and improvements associated with that property. For example, items such as furniture or appliances can be depreciated over time.
How Does Depreciation Work?
The Australian Taxation Office (ATO) has guidelines for calculating depreciation for rental properties. These guidelines are based on the effective life of each asset and also take into account any residual value left after the end of its effective life. The ATO states that assets should be depreciated at a set rate per year, up to a permitted maximum percentage.
Can I Claim Depreciation?
If your property meets all legal requirements, you can claim any depreciation deductions associated with it on your tax return each year. When claiming these deductions, make sure to keep detailed records. These records should include the purchase dates and costs for each asset or improvement made on your rental property. You should then engage the services of a surveyor who has been authorised by the government to create a depreciation schedule. They will go through the property very carefully and record each item. You can then hand over all this information to a tax accountant when it's time for you to file your tax return.
Why You Need to Get It Right
Depreciation is a very important consideration for all rental property owners in Australia. Don't underestimate the amount that you may be able to claim against your tax return. In fact, this saving can often make the difference between profit and loss for certain rental sectors. Consequently, ensure that you bring in skilled people, including a surveyor and a tax accountant, to do this work for you. If you want more information, contact them for their guidance and ensure that you complete the work in a timely manner, so you can file your return without delay.
Reach out to a company like Edge Hill Accountancy to learn more.
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