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Do you know how to depreciate rental property improvements correctly?

BMT team — Thu, 18 Nov 2021 22:35:23 +0000

Making improvements is all part of owning a property, whether it be a home or an investment. The difference with making an improvement to an investment property is that it can result in higher rental returns and depreciation deductions. But do you know how to depreciate rental property improvements? And what is involved in doing so? Understanding difference between improvement and repair Before we get into the nitty-gritty of how to depreciate rental property improvements, it’s imperative to understand the difference between improvements and repairs as they are claimed differently. An improvement is improving beyond what was there to start with, while a repair is bringing back what was there. A repair can be claimed as an instant deduction while an improvement must be depreciated. Differentiating between the two is considered on a case-by-case basis and an accountant will look at a number of factors such as the asset installed, what was there before, the costs and the reasoning for the repair or improvement. For example, replacing linoleum flooring with brand-new carpet would be considered an improvement as you’re replacing the previous asset with a new, higher quality one. But if you instead just replaced part of the linoleum floor with similar flooring it could be classed as a repair. How to depreciate rental property improvements How this is done depends on the type of improvement and what category of depreciation the improvement, or parts of it, fall under. If the improvement is structural in nature or involves installing fixed assets like kitchen benchtops, tiles and doorknobs, then it needs to be depreciated using capital works deductions. Capital works depreciate at a rate of 2.5 per cent per year for residential properties. This means a capital works renovation can produce valuable depreciation deductions for forty years. But if the improvement includes easily removable or mechanical assets, then plant and equipment depreciation deductions must be used. These work differently as every plant and equipment asset has a designated effective life, so they depreciate at different rates based on the depreciable lifetime they are given. Before any renovation an investor must remember that there are 2017 legislation changes in place that impact depreciation available on plant and equipment assets. It means that any second-hand plant and equipment asset purchased and installed after 9 May 2017 are ineligible for depreciation. Therefore, those looking to take full advantage of depreciation should avoid installing a second-hand plant and equipment asset during a renovation. Some plant and equipment assets may also qualify for special incentives. One of these is the immediate write-off, where new assets that cost less than $300 can be claimed as an instant tax deduction rather than depreciated over time. The second incentive on offer is the low-value pool. This allows new assets that are installed during an improvement to be depreciated at an accelerated rate if they are valued at less than $1,000. It’s also important to remember that anything removed during a renovation can be ‘scrapped’. This means any undeducted depreciable value of a removed asset or structure can be claimed as an instant deduction in the same financial year. Now that we know how an improvement depreciates, how can it be claimed as a tax deduction? The key to claiming this depreciation on property improvements is to use a tax depreciation schedule. This essential report outlines every single depreciation deduction claimable from the rental property. An accountant uses this schedule at tax time each year to determine the depreciation deduction to reduce the financial year’s taxable income. What happens if an improvement is made after a tax depreciation schedule has already been prepared? Rental property improvements are made for a variety of reasons. One could be made due to damage or damage prevention, or simply a renovation to improve the rental return of the property. Whatever the case, the good news for investors that have an existing schedule with BMT is that it’s easy to make amendments to a current schedule to ensure the improvement and its assets are included. Now that you know how to depreciate rental property improvements and what’s needed to do so, contact BMT today on 1300 728 726 or Request a Quote.

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Is your investment property winter ready?

BMT team — Tue, 12 Jun 2018 00:31:45 +0000

With the colder weather now well and truly upon us, here are a few things you can check on to ensure your investment property is winter ready. Gardens Gardens tend to be looking their dullest during winter, when the trees have lost their leaves and garden beds lay bare. But a few small fixes will get your garden looking presentable over the winter months and ensure it’s in good form come spring. While most tenants are responsible for garden maintenance in rental properties, it may be worth hiring a gardener if your property has more of an elaborate garden that needs special care during the winter months. Or if your property is sitting empty, there are a few easy ways to make it more presentable for prospective tenants. Start by pruning away any dead branches and if there are any dangerous overhangs trim them back too. Treat your lawn to a winter-specific lawn fertiliser to give it the nutrients it requires for cooler weather. If your yard is prone to falling autumn leaves, consider hiring a gardener to clean away any debris before it starts rotting. Heating and fireplaces With most house fires occurring during winter, it’s important to check that any heaters or fireplaces are in good working order. If your tenants have reported any issues or suspected faults, you should get on to it straight away. Not only does this ensure safety, it’ll keep your tenants warm and happy. Keep the cool air out Check if there are any cracks or holes letting cool air in, or any windows and doors that don’t seal properly. This will be making the home unnecessarily cold and will jack up your tenant’s heating costs. Insulation If your insulation is more than fifteen years old, it’s likely some gaps and holes have developed in it, allowing drafts to come through more easily. For this reason, if your insulation is getting a bit old it might be worth topping it up to ensure your home stays warmer easier this winter. Mould and dampness With everything shut up in winter, this lack of sunlight and airflow can easily lead to mould, especially in cold, dark areas such as bathrooms and cupboards. To avoid this problem, make sure there’s good air flow so any dampness doesn’t just sit there. While this is a bit hard to do if you aren’t living there yourself, you can assist as the landlord by ensuring that windows are able to open and close properly and that any exhaust fans are in good working condition. If a mould issue does spring up, deal with it properly and get the professionals in to eliminate all the spores. Leaks With the extra rain at this time of year, leaks may become more apparent. You should identify the root of the problem and get on to fixing it straight away to ensure leaks don’t develop and become even more serious. Otherwise you run the risk of water damage if it gets through to the carpet or furniture, for example. Fire alarms While fire alarm maintenance should be a year-round practice, it’s critical they’re in good working order in winter when tenants are regularly using heating and fireplaces. Clear out the gutters This is one of the most common winter home maintenance issues. Gutters can easily get clogged up in the winter months with any extra rain and falling leaves. Blocked gutters can cause leaking and water damage so ensure they’re free of leaves, twigs and other debris.

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Tips and trends for a furnished investment property

BMT team — Tue, 21 Feb 2017 22:48:38 +0000

To furnish, or not to furnish your investment property? That is a common consideration for property investors. While there are both advantages and disadvantages to this approach, a furnished investment property can work well in the right market. But it’s important that you furnish it correctly to have maximum impact and make it worth your while. Here are nine tips to help you furnish your investment property. Contents: Decide on the style Colour considerations Level of furnishing Choose furnishings with your target market in mind Work with the space you have Choose the right materials Consider depreciation for your furnished property If it’s worth doing, do it well Make it homely with accessories 1. Decide on the style Rather than buying pieces ad hoc, it’s important to know what overall look or style you’re going for so everything you purchase will work in harmony. Will that couch match your carpet and go with the dining table you’ve already bought? The style you select should flow through the entire home – don’t try and assign different décor styles to different rooms. It’s also advisable to stick with a ‘middle ground’ look – don’t choose anything too polarising, like garish wall colours or quirky furnishings that will turn renters away. Also avoid following seasonal trends that will be out of fashion in a year’s time. Instead, opt for a timeless look with classic pieces that won’t date quickly. 2. Colour considerations When it comes to decorating a rental property, you can’t go wrong with neutrals. For core items like the lounge and dining table, stick with darker colours to disguise wear and tear a bit better, and then introduce pops of colour with some accessories. 3. Level of furnishing Are you going to partially furnish the property with core appliances and whitegoods or provide everything down to cutlery, clothes hangers and pegs? It’s important to decide this before you start making any purchases. A large consideration when deciding this will be your target market… 4. Choose furnishings with your target market in mind Is your investment property suited to student accommodation or an inner city apartment targeted at management-level professionals? Your target market will determine how you should furnish your investment property. If you’re hoping to attract students, you’ll generally only need basic pieces in the bedrooms like a single bed, a desk to work at and perhaps a TV. You also wouldn’t include anything too luxurious or high quality due to the higher turn around and increased wear and tear. If, on the other hand, you’re hoping to attract high-level professionals, you’ll want to appeal to this market with a few more luxuries, homely accessories and higher quality pieces. And if you’re furnishing a large family home in the suburbs, this would require different furnishings once again. Be realistic with your target market and furnish the property accordingly. 5. Work with the space you have It’s important to choose furniture specific to your property. This involves knowing measurements to buy appropriate pieces to fit and choosing furnishings that will suit the household size and type. If you’re furnishing a five bedroom family home, there’s no use supplying a small, two person dining table in the kitchen or one three person sofa. Providing insufficient or inadequate furnishings will be less appealing to tenants than no furniture at all. 6. Choose the right materials When choosing fabrics and materials, remember that you’re furnishing a rental property and will need something that will survive use over several tenancies. It might be better for instance to invest in a leather lounge that will stand more spillages and clean easier than a fabric lounge. With whitegoods, choose something that is easy to wash and take care of – if it can only be hand washed or washed using very specific instructions, it’s likely to get ruined or turn the renter off. 7. Consider depreciation for your furnished property While furniture may seem like a large outright expense, remember that you may be able to claim depreciation* on all of the furnishings in your investment property. You should also consider depreciation when choosing your furniture – certain items or materials may depreciate at a faster rate and give you bigger bang for your buck. 8. If it’s worth doing, do it well Don’t make your investment property a dumping ground for the old, unwanted furniture in your own home. An imposing, dated, free standing wardrobe that takes up half the bedroom floor space, for instance, will only turn renters away, as will tatty or dated furniture. Unless you’re going to furnish the property in a way that’s beneficial to tenants, it’s not even worth doing. Understand that furnishing your property correctly can boost your investment’s potential while a half-hearted or substandard job can damage it significantly. 9. Make it homely with accessories If you’ve decided to fully furnish the property, make it feel like a home and finish the look off with some lamps, artwork and area rugs to liven up the space. If they don’t love the artwork you’ve selected the tenant can always pack it away and place their own piece on the hook throughout their tenancy. *Under proposed changes to legislation, investors who exchange contracts on a second hand residential property after 7:30pm on 9th May 2017 will no longer be able to claim depreciation on plant and equipment assets. Investors who purchase a new property will be able to continue to claim these items as they were previously. We are currently speaking with government to further understand the intricacies relating to the proposed changes. To learn more visit www.bmtqs.com.au/budget-2017.

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Show your investment property some love this Valentine’s Day

BMT team — Mon, 13 Feb 2017 22:29:38 +0000

When most people think about Valentine’s Day, tax depreciation generally isn’t the first thing that comes to mind. It probably doesn’t even rate a mention, to be fair. But at BMT Tax Depreciation we like to think that Valentine’s Day is the perfect time to show your investment property some love. Here are some practical tips to improve your investment property this Valentine’s Day. Pick out a few and don’t be surprised when your investment property shows you some love in return. 1. Add appeal with cosmetic improvements Undertaking some cosmetic improvements is one of the easiest ways to show your property some love and improve its value and appeal. Cosmetic renovations are improvements or updates that don’t affect the structure of a home. This could include painting, updating flooring, installing new window coverings or changing the light fittings. While these updates are generally cheaper than structural renovations and quicker to carry out, they can also give you greater bang for your buck as they usually make more of a visual impact. While a fresh lick of paint and some new carpets may not seem like huge tasks, they can make a huge difference to the property’s appeal to tenants and improve your rental return. 2. Make an impact with a structural renovation If your property – or certain rooms in your property – has seen better days, and its dated, impractical or wearing interior is turning tenants away, consider undertaking a renovation. Focus on improving core rooms including the kitchen and bathroom – these rooms are often drawcards for tenants and buyers alike. If they’re quite dated and well beyond the help of some cosmetic updates, a remodel is a fantastic way to capitalise and improve appeal. While it may seem like a large expense, such improvements can generally attract a higher rental or sale price meaning you should be able to make that money back over time. Owners and investor should be cautious, however, not to overcapitalise when renovating. Don’t forget to consult with a Quantity Surveyor prior to any renovations or updates. You should be able to scrap any items you get rid of (old carpets or kitchen appliances, for example) and claim depreciation for the full effective life of newly installed assets. 3. Show your good tenants some love Never underestimate the value of holding on to a good tenant. Not only do you have the assurance your property is being taken care of and treated with respect, a long term, good tenant saves you the costs associated with re-advertising and finding new tenants. There are lots of things you can do to show your tenants your appreciation and encourage them to stay. Ensure you address any issues, requests or repairs in a timely manner, be respectful of their privacy and keep in mind that while it is your property it is the tenant’s home. As a nice touch, you could ask your Property Manager to pass on your thanks to a long term tenant, send them a bottle of wine when they re-new their lease for another year or mail them a card at Christmas time. While these are small gestures, they don’t often go unnoticed. 4. Get organised While there’s nothing romantic about organising paperwork and sorting out your finances, it’s a good idea to keep on top of these things so you know what’s happening with your investment and you don’t fall behind, potentially missing something important. If you’ve been putting these tedious tasks off for a while, imagine the satisfaction you’ll get when the job is complete – better than any box of chocolates. 5. Review your strategy and investment performance Any savvy investor will know that it’s important to have a strategy in place and regularly review their property’s performance to see if they’re on track with their investment goals. Just like a real life relationship, your investment will grow and change over time, so it’s important to ensure you’re aware of how your property is performing and if it is in line with your investment goals. 6. Review the rent If you haven’t reviewed the rent you’re charging in a few years, now’s the time to do so. There are disadvantages to both undercharging and overcharging rent and you want to make sure you are charging the correct amount in line with current market conditions and the true value of your property. Chat to your manager about this if you haven’t done so in a while. Ideally, you might find your current rent can be boosted up slightly. 7. Claim all tax deductions As a property investor you are entitled to a range of tax deductions. If you haven’t already done so, you should order a tax depreciation schedule for your investment property. On average, this can save investors between $5,000 and $10,000 on a residential property in the first full year alone. It’s be hard to get a better Valentine’s Day present than that!

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