Have you considered leasing out your investment property furnished? When you furnish a rental property, the furnishings become part of the Division 40 plant and equipment assets allowing you to claim depreciation deductions for the wear and tear of the furniture over their effective lives, reducing your taxable income.
To help you weigh up the pros and cons of renting out your property furnished, BMT has answered some commonly asked questions when it comes to rental furnishings.
Q: Is furniture tax deductible for rental property?
A: In most cases, furniture purchased by an investor for an income-producing property will attract depreciation deductions. Depreciation refers to the natural wear and tear a property and its assets experience over time. The Australian Taxation Office allows investors to claim a deduction for this wear and tear.
Furniture within an income-producing property is typically claimed as a plant and equipment deduction, which refers to the easily removable items within an investment property.
To be eligible to claim depreciation for furniture within a rental property, you must:
- purchase the items when the property is income-producing or genuinely available for rent
- directly incur the cost of the furniture.
Q: What’s the easiest way to claim deductions for furniture?
A: A tax depreciation schedule is the best way to ensure you claim all the deductions you’re entitled to. A BMT Tax Depreciation Schedule covers all deductions available over the lifetime of a property (forty years) and is 100 per cent tax deductible. During the FY 2022-2023, BMT found residential property investors an average first year deduction of almost $9,000.
Q: Can I claim deductions on second-hand furniture?
A: The short answer is no. While second-hand furniture can be a cost-effective option, it’s ineligible for depreciation deductions.
This is due to 2017 legislation changes that disallow depreciation deductions to be claimed on second-hand plant and equipment assets. This includes those that still have remaining depreciable value.
Q: Can I charge higher rent if the property is furnished?
A: A landlord can typically charge a higher rental rate for a furnished property. Depending on your location and property type, you may be able to charge between 15 to 70 per cent more.
While this seems like a fantastic return on an investment, any landlord considering furnishing a rental property should first consider the reduced tenant demand. Most tenants are looking for unfurnished property, so be sure to assess your local property market carefully.
Q: What type of tenants will a furnished property attract?
A: Furnished properties typically attract travellers, young tenants who haven’t accrued their own furniture and business professionals who frequently move for work.
With this in mind, furnished leases reflect the intermittent nature of such tenants and are usually between three and six months long. These types of leases are usually suited to major metropolitan areas or smaller regional centres that have a fly-in fly-out lifestyle.
Q: What happens if my furniture is damaged?
A: If the lease states that you are renting out a furnished house with appliances, then you’re not only responsible for keeping the building in good shape, but the furniture and appliances as well.
However, if the tenant damages your belongings, you may be entitled to make an insurance claim so it’s important to have proper cover.
Landlord insurance is a type of insurance policy designed to protect property investors from tenant-related risks including loss of rental income and malicious or accidental damage caused by the tenant. As landlord insurance is an investment expense, it can also be claimed in your annual tax return.
It’s important to note that each landlord insurance policy will differ. For more information, contact BMT Insurance on 1300 268 467.
Q: When is it a good idea to have an unfurnished property?
A: An unfurnished property is more likely to appeal to tenants looking for a home over the long-term. Typically, this means that leases will be for six to twelve months.
Some tenants prefer the opportunity to furnish the property and can be put off by a landlord’s furniture. This is especially the case if a tenant already has their own furniture that would need to be stored elsewhere.
If you’re undecided on what to do, perhaps advertise your rental as unfurnished and include the option to have it furnished for additional rent in the listing description.
There are a number of advantages and disadvantages to furnishing an investment property. It’s important for investors to consider their personal circumstances before making a decision.
Thanks for the information—we obtained a depreciation schedule from you for our most recent investment property that we are in the 3rd year of now. We also used you on two earlier ones—happy customers!
We are now in the situation where we bought new furnishings to let the subject apartment on a “furnished” basis.
We are currently contemplating selling this apartment.
Let’s assume that this 2024FY will be our FINAL year of income from the property, and that we sell WITHIN 2024FY, ie. before 30Jun2024.
My question is this—what happens to the residual (ie. as yet unclaimed) value of the furnishings from your depreciation schedule…do we get to “write off” this residual value against our rental income in this final year? Or is the residual value of the furnishings a “capital” amount that gets set off against our cost base in the sale? Further, do the answers to these questions vary if either (1) we INCLUDE the furnishings in the sale amount if the buyer is interested in them; or (2) we dispose of the furnishings at ZERO recovery cost (ie. in the dumpster!)
Thanks so much!
Hi Pat,
Thanks for your comment and continued use of BMT for your properties.
In scenarios where the furniture is included in the sale of the property, it will often be removed along with the other plant and equipment asset. The residual value is not claimed in that final year.
These assets are removed from both the purchase price and selling price and are calculated separately. The value of the plant and equipment at sale and the depreciation claimed in some circumstances can affect the capital gain or loss.
In scenarios where the furniture is disposed of, the assets will be ‘scrapped’. Scrapping is the un-deducted value of a depreciable asset. The remaining value is claimable as an immediate deduction in the same financial year the assets were removed.
It’s important to speak with a quantity surveyor before and after any assets are removed to ensure the correct deductions are identified.
We recommend calling BMT on 1300 728 726 and consulting your accountant for more information before taking action.
Thanks,
The BMT Team.
Hi, if I bought new furniture or small appliances like a kettle/vacuum cleaner but offer the property as unfurnished or furnished (optional per suggestion by your article) and the renter chose unfurnished – can I still claim depreciation on those items?
What if the item was $300 inc gst or less- can I claim the full amount straight away (not depreciation)? Any clarification on this would be much appreciated. Thankyou!
Best regards,
Kim
Hi Kim
Thanks for your comment.
Assets are only tax deductible if they are used to produce income. Since the furniture and appliances won’t be used in the rental property it means you won’t be able to be claim them as a tax deduction.
Thanks,
The BMT Team
Thanks for the information – we obtained a depreciation schedule from you for our last investment property and it was very beneficial.
My question here is – I’m confused at how you can depreciate furniture you buy for a furnished apartment ONLY if it’s bought when the apartment is genuinely available to rent. However it won’t be genuinely available to rent until you have the furniture, taken your photos and offered it to rent as a furnished apartment. So how is it even possible? Thoroughly confused on that one! And would appreciate hearing your thoughts. 😀 Thanks!
Hi Caroline,
Thanks for your comment.
Good question! The 2017 legislation changes mean that ‘previously-used’ plant and equipment (e.g. furniture) can’t be depreciated.
This means if you purchase brand-new furniture solely for the apartment then you can still claim depreciation on it when the property becomes genuinely available for rent, you just won’t be able to claim depreciation before this or use it personally.
Thanks,
The BMT Team