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When purchasing an older investment property, many investors decide to renovate the property after settlement. Investors can often claim thousands of dollars in
deductions when renovations are done. The following case study highlights how it worked for one investor.
Case Study
Jim purchased a 60 year old 3 bedroom townhouse in Paddington. In its pre-renovation condition, the house contained carpet, vinyl, blinds, an air conditioner, old
stove, hot water service and light fittings. Upon his accountant telling him about the potential depreciation deductions available in old, pre-renovated properties, Jim
decided to contact BMT Tax Depreciation to enquire about a scrapping report before he started any work on the property. BMT visited the site and conducted a full
site inspection, taking note of all the items that could be ‘written off’ before they were thrown out. The following deductions were obtained:
While investment property owners won’t be getting any benefit from the
FHOG increases, those with variable interest rates will be enjoying lower
repayments.
Want Even More Money in Your Pocket This Year?
Jim then took the BMT report to his accountant and claimed $6,270 in depreciation deductions that year in his personal tax return.
Over the following 12 months, Jim completed his renovations, including an extension at the rear of the property. He again contacted BMT Tax Depreciation to come
and assess the renovated property to achieve the maximum depreciation deductions. BMT Tax Depreciation were able to complete a second report for Jim, taking
into consideration all new additions (stainless steel oven, cooktop and rangehood, new carpet, air conditioning unit, etc) as well as calculating the construction write
off allowance now available on the extension.
Both Jim and his accountant were impressed with the total depreciation claim on the scrapped assets and renovated property of $16,000 in the first year alone!
How is Scrapping Calculated?
The first report prepared by BMT Tax Depreciation is undertaken prior to any renovation or refurbishment. BMT Tax Depreciation
prepares a report identifying the value of all plant and equipment and qualifying capital expenditure contained within the property.
A second report is then prepared by BMT Tax Depreciation after completion of the renovation, identifying the value of all new plant
and equipment and capital expenditure within the property.
The assets within the building that are no longer present can be written off immediately. Scrapping is a complicated process that
requires the expertise of a specialist Quantity Surveyor, like BMT Tax Depreciation, in conjunction with your accountant.
Many investors remain unaware that pre-renovation/demolition investment properties contain depreciation deductions.
If you are unsure about your entitlements, contact BMT Tax Depreciation before you start any work on your property. We may
be able to obtain you thousands of dollars in depreciation deductions you never knew were available!
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