Being smart about your tax deductions
A case study by BMT Quantity Surveyors has disclosed the extra deductions that may be available with a report on split tax depreciation if you own your investment property with someone else. A split-depreciation report measures depreciation deductions for each owner based on the percentage of ownership of each owner for an asset. This increases effectively what you can invest on updates while optimising
How do reports on split-depreciation work?
Under Australian legislation, an automatic write-off for assets worth $300 or less can be sought in the case of an investment property with one owner.
The proprietor may assert immediate write-offs for assets worth $300 or less for investment property with a 50:50 ownership share. That means the owners can now demand an immediate write-off in total value on products $600 or less. This increases the number of assets that stakeholders can report as an instant write-off and offers additional incentives for your investment properties to make small improvements.
How are the numbers stacking up?
A 50:50 tax depreciation split is, as illustrated in the case study by BMT Quantity Surveyors, an ideal option for transactions such as a new range. For example, if two people who each have a 50 per cent stake in an investment property purchase a new $500 range hood, they can claim 250 dollars each. The balance can be written off in the first year since it is below the level of $300.
Do the 50:50 depreciation splits have other benefits?
The split-depreciation approach of 50:50 also applies to low-value pooling. In low-value pooling, if an owner's interest in an asset is $1,000 or less, these items qualify, allowing the items to be charged at a higher depreciation rate of 18.75 per cent in the first year and 37.5 per cent from the second year on. For an example we will see how the numbers stack up using a new oven. If the oven costs $1,750 and the cost is equally split between the owners, it will cost $875 per user. As each person's payment for the oven is below $1,000, it applies for low-value pooling allowing a first year deduction of 18.75 percent and a second year deduction of 37.5 percent. Without an increased rate of depreciation, investors would only be allowed to claim an annual rate of depreciation of 16.67 per cent as illustrated in the case study of BMT.
The benefits of pooling at low value
In a scenario where ownership of an investment property is 50:50, owners would qualify to pool assets in the low-value pool which cost $2,000 or less. This gives owners an increased number of assets available for low-value pooling, as well as allowing investors to buy products of higher quality if they wish. For example, you can choose to upgrade kitchen appliances such as ovens, cooktops and dishwashers, or offer a treat and add air conditioning to your tenants.
The rules for investment property depreciation and tax deductions are constantly changing, so make sure you talk to your accountant to double-check exactly what you can say before making any big purchases.
For further information about real estate in this area, contact No Bull Real Estate, your most reliable and friendly real estate agents in Newcastle & Lake Macquarie. Buying, selling, leasing for residential, commercial, industrial property, contact your local expert to buy, sell or lease today on 49552624 or https://www.nobullrealestate.com.au
The information is for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.