Increasing tax deductions for homeowners
The percentage of homeowners claiming tax depreciation on plant and equipment has increased in the past financial year due to owners turning their homes into rental properties.
The growth of homeowners renting rooms, using the share accommodation portals such as Airbnb or choosing to rent instead of selling their homes is indicative of the overall market.
Some owners are temporarily relocating with a plan to return home at some stage. This occurs when a temporary peak exists in a rental market, so homeowners take advantage of the higher rental yields.
Most popular among homeowners claim tax depreciation is for long-term capital growth and to use equity to finance their next home and avoid selling costs.
A homeowner that have applied this strategy to growth markets like capital cities would have achieved capital growth in the past few years.
For homeowners that have carried at least one home through a housing boom and are moving on to their next principal place of residence, this strategy of claiming depreciation has become more relevant.
Understanding tax depreciation and obtaining a schedule of items that can be depreciated can transform a homeowners tax situation. The reason for renting out the home is not important in order to get the scheduled completed. All rental properties should have a tax depreciation assessment done.
The owner of an investment property must report to the Australian Taxation Office all income they earn from an investment property. Where income is declared to the ATO, the expenses associated with that investment property can also be claimed.
The expense items that can be deducted from the income is the loan interest, council rates, property management fees, insurance premiums and even the cost of the tax depreciation assessment.
The structural components and the plant and equipment contained in the rental property are also eligible for the deduction, subject to the dates of acquisition.
Whether the structure is producing an income or not, the structure and fixtures are susceptible to wear and tear over time and depreciate in value. When the property starts to produce income, these deductible losses can start to be claimed.
The depreciation schedule commences from the time of property was initially purchased. The depreciation schedule should show a partial fiscal year calculation for the period it generated income.
A specialist Quantity Surveyor can also structure a depreciation schedule to maximise deductions during the time that a property is income producing and minimise deductions when the property was a primary place of residence. This is achieved by using a low-value pool for relevant assets at the right time.
According to BMT Tax Depreciation Quantity Surveyors, “low-value pooling is a method where low-cost assets with an opening value or less than $1,000 and low-value assets with a written down depreciation value of less than $1,000, can be depreciation at an accelerated rate. If a property was formerly a home, it is best to hold off any low-value pooling until the property starts to produce income.”
You should always consult your accountant or a tax professional about renting out your home. BMT can provide you with a free estimate of the likely depreciation deductions that will become available as I have done our rental properties.
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