It’s the beginning of a New Year and at this time many of your clients may be spending some time budgeting and making plans to invest in property.
Whether your clients plan to buy an investment property alone or with a friend, depreciation deductions can add thousands of dollars to their cash flow.
On average, investors can claim between $5,000 and $10,000 in the first financial year alone from an investment property. When a property is
co-owned this can substantially increase the deductions both investors can claim, so it is important to understand how depreciation will be calculated in this scenario.
To help Accountants to assist their clients who choose to purchase an investment property with a friend, partner or colleague, below are three tips to help your clients claim split deductions correctly.
Don’t just calculate each owner’s interest first
A common mistake is to calculate depreciation deductions for a property and then split the deductions for each owner based on the percentage of ownership.
When applying depreciation legislation to assets within co-owned properties, the cost threshold that qualifies for accelerated depreciation rates can be governed by each owner’s interest in the asset. However, it is often more beneficial to calculate each owner’s interest in the individual assets’ value first, and then apply the depreciation rules to the respective owner’s interest in the asset.
Use immediate write-off and low-value pooling wisely
Legislation allows property investors to claim an immediate write-off for assets with an opening value less than $300 and to add assets with a value of less than $1,000 to a low-value pool.
In a situation where ownership is split between one or more parties, an Accountant can apply these rules and claim an immediate write-off to items where each owner’s interest in the asset is below $300 and apply
low-value pooling to items where each owner’s interest in an asset is less than $1,000. Pooling allows the depreciation of assets at an increased rate of 18.75% in the first year and 37.5% for each year onwards.
By splitting the owner’s interest first, the amount of items which qualify for immediate write-off and low-value pooling is increased, resulting in higher depreciation claims for each owner.
Ask for a split tax depreciation schedule
Obtaining a BMT Tax Depreciation Schedule makes it easier for Accountants by splitting depreciation deductions. This ensures an investor’s claims are maximised for any percentage of ownership. BMT can take into account any number of owners and ownership percentages, from two owners with a 50:50 split to 1:99 or even four owners at 70:15:10:5.
To find out more, speak with any of our friendly staff on 1300 728 726 today.