» pro-rata depreciation

Benefits of partial year depreciation deductions

BMT team — Sun, 20 Nov 2022 23:00:56 +0000

When property investors are preparing their annual income tax return, it’s important to organise a tax depreciation schedule for any recently purchased properties. Even if you have purchased a property in the lead up to the financial year and only owned it for a short period of time, there are still depreciation benefits. Partial year depreciation deductions can be maximised by your quantity surveyor by applying a pro-rata depreciation calculation, resulting in extra cash for you. In this article we will explore: Partial year depreciation deductions Immediate write-off Low-value pooling Talk to an expert Partial year depreciation deductions Investors can claim pro-rata depreciation deductions for the period their property is rented out or is genuinely available for rent. That is, the property is given broad exposure to potential tenants and considering all the circumstances tenants are reasonably likely to rent the property. This is particularly important for holiday homeowners as the property may only be rented during peak seasons like Christmas and New Year. If you use your holiday property for both private and income-producing purposes, you can only claim a deduction for the period where it is income-producing. Partial year depreciation deductions may also apply to investors who have previously used the property as a primary place of residence. Be sure to speak to your quantity surveyor to ensure you claim correctly. BMT Tax Depreciation use legislative tools to make partial year claims more beneficial to new investment property owners. Methods used in pro-rata depreciation calculations include applying the immediate write-off rule and adding eligible assets to a low-value pool. Immediate write-off An immediate write-off applies to any item within an investment property with a value of less than $300, regardless of how long the property has been owned and rented. As an investor, you’re entitled to write-off the full amount of the asset in the first year. For example, if you purchase a new smoke alarm valued at $50 for your investment property, you can claim 100 per cent of the cost in the year of purchase. Low-value pooling Low-value pooling is a method of depreciating plant and equipment assets which have a value of less than $1,000. Any plant and equipment assets with a value of less than $1,000 can be included in a low-value pool and written off at an accelerated rate to maximise deductions. Item can be depreciated at 18.75 per cent in the first year and 37.5 per cent each year thereafter. This amount can be claimed in full in the relevant financial year regardless of how long the property was held for, even if it was one single day. Two types of depreciable assets can be allocated to a low-value pool: Low cost asset: a depreciable asset that has an opening value of less than $1,000 in the year of acquisition Low value asset: a depreciable asset that has an opening value of greater than $1,000 in the year of acquisition but the value after depreciating over time is now less than $1,000. This will only apply if you’ve previously used the diminishing value method. For example, if you purchase a hot water system worth $1,500 it can be depreciated using the diminishing value method. Once its depreciable value falls beneath $1,000, it will be added to the low value pool as it’s considered a low value asset. On the contrary, if the hot water system cost $900 at the time of purchase it would be automatically added to the pool as a low cost asset. It’s important to note that once an item is placed in a low-value pool, it cannot be taken out. Assets which form part of a group with a total cost exceeding $1,000 can cause confusion for property investors so it’s important to speak to an expert to clarify what can and cannot be claimed in a low-value pool. Talk to an expert To ensure all depreciation deductions are claimed correctly for the period a property is income producing or available for rent, investors should request a tax depreciation schedule. A BMT Tax Depreciation Schedule will outline all qualifying deductions from the date of settlement and include a partial year depreciation claim that is calculated pro-rata based on the time the property is rented.

The post Benefits of partial year depreciation deductions appeared first on .

Property investors: earn more from your holiday rental

BMT team — Wed, 20 Jan 2016 06:38:38 +0000

It’s that time of year when many investors take a well earned break by booking a holiday away from home with their family or friends. While they are away from home, property investors might be tempted by opportunities to purchase a holiday rental as an investment. Before making a decision to dive in and purchase a property, investors should seek advice from relevant professionals such as a Property Manager, an Accountant, a Financial Advisor and a Quantity Surveyor. This is because investors often decide to purchase a holiday rental with more than one motivation. They not only hope to gain an income from the higher weekly rental yields that a holiday home may offer, but they also picture taking advantage of their investment by spending some of their summer holiday’s taking in the ocean views from the front patio or swimming in the backyard pool. One common mistake holiday rental property owners make is to assume that because they are personally using the property, depreciation cannot be claimed. This can lead many investors to miss out on thousands of dollars in lost deductions annually. A specialist Quantity Surveyor can provide a tax depreciation schedule which is based on the portion of a year a property is available for rent, so it is best to seek advice on what deductions can be claimed before making any purchase decisions. Ensure you claim depreciation deductions for both the building and furniture The additional cash flow received by claiming depreciation deductions can often make the difference as to whether a holiday rental is a negative cash flow asset or a positively geared investment. A specialist Quantity Surveyor has the expert knowledge to calculate construction costs for the purposes of depreciation. They will perform a site inspection of the property and prepare a depreciation schedule which outlines all the deductions available including capital works deductions (for the building structure and fixed assets) and the depreciation of plant and equipment items (removable fixtures and fittings such as carpets, blinds, hot water systems and light fittings). Learn more: How BMT prepares tax depreciation schedules A specialist Quantity Surveyor will find the depreciable value of all assets within your holiday house. These items can add thousands in extra deductions over the first couple of years alone. Holiday house case study In the following example, an investor purchased a fully furnished property valued at $460,000 for use as a holiday home. The owner rented the property to holiday makers for twenty four weeks (168 days) of the year for an average return of $1,100 per week. For six weeks of the year they chose to use the property for personal use. During the rest of the year, the property was untenanted. This resulted in a total income of $26,400 per annum. Expenses such as interest, rates and management fees totalled to $28,000. The client was able to claim losses on a pro-rata basis for the time the property was being rented out during the first full financial year, leaving a total claimable amount of $12,887*. They were left with a positive cash position on paper of $13,513. By law, the client is required to pay tax on any income earned. However, by enlisting a specialist Quantity Surveyor and claiming depreciation, this client could reduce their tax bill by an amount of $1,959 for the year. The depreciation deductions in this case study have been calculated using the diminishing value method of depreciation and have be based on the pro-rata income and expenses the owner incurred during the first full financial year of ownership for the period the property was available for rent. *Pro-rata calculation $28,000 x 168/365 = $12,887 This investor was able to reduce their out of pocket expenses from $127 per week, down to $89 per week. A saving of $38 weekly, even though the property was only producing income for twenty four weeks of the year. If you’re considering purchasing a holiday rental or if you own a holiday home that is earning an income but do not currently claim depreciation, request an estimate of your likely depreciation deductions which may be available.

The post Property investors: earn more from your holiday rental appeared first on .

Claim $4,852 in twenty nine days

BMT team — Thu, 01 Nov 2012 05:49:31 +0000

A tax depreciation specialist can help you claim maximum depreciation deductions – even on a newly purchased property near the end of a financial year. Organise a depreciation schedule before settlement You can maximise partial year deductions with a depreciation schedule prepared by specialist Quantity Surveyors who have insider legislative knowledge to help you make the most of a partial-year claim. Don’t wait until the next financial year to save money – start claiming partial year deductions now! Immediate write-off A specialist Quantity Surveyor can make use of legislative tools to make partial year claims more beneficial to the owner; regardless of how long a property has been owned and rented. Any item in a property that’s valued at under $300 can be written off immediately – regardless of how many days the property’s been owned. You can also take advantage of low-value pooling – where groups of items worth less than $1000 are depreciated together. How one BMT client saved thousands An investor purchased a house for $550,000 and rented from June 2. Even though this property was only owned and rented for twenty nine days, the owner was able to claim back $4,852 for the first financial year. How? BMT Tax Depreciation was able to find: $1,288 in immediate write-off allowance for items costing under $300 $2, 274 for low-value pooled items, and $520 by depreciating remaining items based on the remaining financial year. A BMT report and tax depreciation schedule will list partial year claims in a separate column, making the process simpler for your Accountant. Download the detailed case study available in Maverick – Issue 32 Why use BMT Tax Depreciation? A qualified tax depreciation specialist is able to help property owners maximise their depreciation claims. We use current legislation available through the Australian Taxation Office to ensure that depreciation claims can be truly maximised – even for a partial financial year. Request a quote today to find out how a specialist Quantity Surveyor can help you accelerate the depreciation benefits of your investment property today.

The post Claim $4,852 in twenty nine days appeared first on .