The mysteries of depreciation

One of the things that has taken me a long time to understand when it comes to investing is property depreciation and how it works with your income and particularly around tax time. I just sat through a webinar this evening (note my previous post about being willing to learn and becoming a student again) and it reminded me how challenging it was for me to get my head around it but also how beneficial it was once I knew about being able to utilise property depreciation to claim ‘non-cash’ deductions on your investment property come tax time.

In a nutshell it basically means that the cost of the property itself (both the building and the fixtures inside it) decrease in value over time, essentially it’s talking about wear and tear over the years. In Australia (I’m not sure about other countries) the tax office allows for legitimate deductions taking into account this decrease in value of the property and it’s fixtures each year. In the webinar it was stated that as much as 80% of investors are not claiming as much as they could be on these non-cash deductions each year. I certainly realised this a few years ago when I had a full depreciation schedule done on one of my properties. I was pretty pleased when the report outlined the amount that I could claim. The thing is however that you need to get a qualified quantity surveyor to prepare the report as that is all the tax office will accept. You’ll need to spend some time looking around to find the right person to do this for you. Don’t hesitate to compare and ask several surveyors about what they can do and the costs associated.

I’d certainly encourage all investors new or old to learn more about depreciation and how it can apply to your own circumstances, it can make an amazing difference to what you can claim against your investments and potentially a nice improvement on your tax return. The YouTube video below is from an Australian company (the ones that conducted the webinar) and I’d say is worth a look. This company is just one of many and I’d encourage you to look around and find one that suits your own needs.

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