If you’re a property owner, investor or looking to get into the market The Rentvesting Podcast will help cut through the hype, look at the facts and draw on decades of experience to help you make smarter property decisions.
May 6, 2017
This week we're talking tax, it would otherwise be a dry episode but we're going to make it fun. It's so important, so we're talking to Bradley Beer from BMT Tax Depreciation.
People forget to get a depreciation report which ultimately cost you money by not claiming deductions.
Depreciation is one of the major things that can help cash flow for Property Investors.
Quite simply, when you've got an investment property, the elements in it wear out like the carpet and items inside. It's like when you have a car and use it for work, you can claim depreciation.
We're buying property for it to increase in value but your carpet is still wearing out. So you can make a claim for this.
It is often missed, however, because it is a non-cash taxed deduction item. Depreciation is wear and tear on the property that happens over time but it is often missed.
The simple thing is that people buy a property with an intent to make money and the depreciation is one of those things from a cash flow element that does make a difference.
Old properties still get some depreciation, but it's always worth asking the question about how much that it might actually be. Deduction depends on your tax rate if you're on a top marginal rate you can get nearly half of it back.
There are some difference in property ages too like if it's built before 1987 you won't get building allowances, so there are questions like that. We, as the agency worry about that though and will tell you if there's enough in the property to make it worthwhile doing it.
The average first-year deduction is about $4,800, while brand new is about $13,000. It changes based on what the property is, but there are always potential deductions and they do mean cash back in your pocket.
I think one of the important things to start with is to make sure whatever is there, you take advantage of. People don't do this sometimes because they believe they have a good accountant.
The biggest thing that is missed is actually doing it properly in the first place. After that, when you're looking at properties try to get some idea of what makes a difference.
For example, a newer property gets more deductions, then older properties get more back if have newer appliances - like a new hot water system will get more than an older one. You can use our deduction calculator on our website to figure out what sort of deductions can be made.
One of the numbers that need to come in when you're investing is looking at the depreciation deductions. Make sure you know what it will cost you to hold the property before you look at buying.
As with anything, if someone's fees are half as much as someone else, then you've got to question if something has been cut out of the process.
One thing we always make sure that is done is inspecting the properties ourselves. We go out and look at the type of assets in the property to put a price on it. Nothing is outsourced, it's done by people getting the maximum deductions out of the property.
That widens to how you estimate the construction costs. We measure and estimate the building then marry that with the tax rules, we also build the software to make sure the tax rules are applied properly. Inspecting the property is important because it's being thorough and not making a guess about it. I think with any type of professional service if you cut corners you can do it cheaply, but in the long run, this will mean you'll probably miss things and end up with fewer deductions.
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