Have you owned a rental property for several years but forgot to claim depreciation? The good news is that yes, you can go back and claim these missed depreciation dollars.
What is depreciation?
Depreciation is the natural wear and tear of property and assets over time. As a property investor, you can claim your rental property’s depreciation as a tax deduction each year.
Depreciation is claimed under two categories. The first is capital works, this is claimable on the property’s structure and fixed assets such as walls, doors, kitchen bench tops and tiles.
The second category is plant and equipment, which includes the easily removable and mechanical assets like floor coverings, hot water systems and air-conditioning units.
What do you do if you forgot to claim depreciation on rental property?
There are several reasons why investors don’t claim depreciation. Sometimes they simply don’t know that the deductions exist, while others don’t believe it’s available to them.
Whichever the case, it’s important to always seek advice from a specialist quantity surveyor, such as BMT. They will be able to determine the depreciation available and hence, whether it’s worth back-claiming any missed deductions.
Most of the time the answer will be yes. Once BMT gets the green light from you they will make a start on preparing the schedule and organise a physical site inspection.
Is it hard to back-claim?
It’s not necessarily ‘hard’ to claim back missed dollars, but your accountant will need the documentation to ensure it is done correctly and to substantiate any back-claim that is made. Therefore, a tax depreciation schedule is so important.
The schedule itself will usually allow your accountant to amend two previous tax returns so you can claim back those missed dollars in depreciation deductions.
In some scenarios, your accountant will be able to go back further if the numbers are there to do so. But this can be difficult to do without a comprehensive tax depreciation schedule that provides the deductions in line with legislative requirements.
Is there a limited dollar amount that you can claim back?
There isn’t a capped amount that you can claim when you’ve forgotten to claim depreciation on your rental property. It all comes down to how much has been missed and what is proven with the tax depreciation schedule.
For example, if you missed claiming since the 2019/2020 financial year and each year’s depreciation deduction was approximately $10,000, the entire amounts for each year can be claimed against the corresponding tax return.
What happens if you complete a renovation after the schedule is prepared?
Renovations can come unexpectedly. Sometimes the need for renovation is due to extensive damage that can’t be fixed with straightforward repairs, while other times it could simply be done to increase the rental return of the property.
When a renovation is made, it’s easy to make amendments to existing tax depreciation schedules with BMT. The team will simply get the details of the renovation and update the schedule for a small fee.
To learn more about depreciation and what to do when you forget to claim it on your rental property, contact BMT today on 1300 728 726 or Request a Quote.