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Why you can’t afford to miss out on depreciation benefits

Date Posted: Jun, 2015

By Rich Harvey, CEO, propertybuyer.com.au

If you're ready to buy investment property in Sydney, than you know all about the capital gains on offer – especially with the constantly rising prices. One negative of a rapidly rising market is that it is harder to get good rental yields. Data from SQM Research has shown a downward rent in implied yields for houses over the last few years, while unit yields have skyrocketed in recent months. 

As we approach June, our thoughts typically turn to tax – it's one of those things we like to avoid but with the right advice and a smart approach you can minimise your tax with a few simple property strategies.

Sometimes, positively geared property is hard to make happen – but there are other ways of improving your bottom line with an investment property. Namely, through depreciation.

Weaving money out of losses

Most things fall in value over time, and the same applies to your property. Wear and tear can see the value of your bricks and mortar drop in the long term, but the tax breaks that this affords are quite the sweetener. These fall into two categories: Capital works (the building itself), and plant and equipment (appliances and the like).

Anything from a washing machine to the foundations of the home can bring you these benefits. Depending on the asset, varying percentages of the initial value will be deductible from the tax you pay on the investment property. Note, though, that this only applies to income-generating real estate. 

How do you claim the money?

The most important step to claiming these benefits is developing a tax depreciation schedule. This means getting a professional quantity surveyor to look at your property, who will then will give tangible figures for how much your capital works or other assets will devalue by over time. We always recommend always getting this specific type of professional to make your schedule for maximum returns. Give us a call and we can provide the names of the best depreciation specialists in the country.

These tax breaks can number in the thousands of dollars, and end up being the difference between a profit and a loss on your Australian investment property. On top of this, it's a non-cash deduction – the rare benefits you can claim without having to continue spending money. 

Why is it important?

As I noted up the top, rental yields are getting tighter. And unless supply barriers like stamp duty are broken down, they could stay like this for some time. It's important you get as much as possible out of your investment property, and depreciation can make or break your finances. 

If you need more advice on how to make the most out of property investment, don't hesitate to talk to our award-winning team here at Propertybuyer – or for now, check out our free investment reports