Real estate investors who have second-hand rental properties may miss out on significant write-downs.
An analysis by BMT Tax Depreciation found that approximately two-thirds of second-hand homes have undergone some form of addition or renovation in the past three years.
Bradley Beer, CEO of BMT Tax Depreciation, said many real estate investors are unaware that they can claim depreciation on older second-hand properties.
“In November 2017, the government changed the way investors claim depreciation on plant and equipment assets – in particular, depreciation on previously used plant and equipment assets can no longer be claimed,” Mr Beer said.
“This has led many investors to misunderstand the changes and not claim write-offs at all — potentially missing out on thousands of dollars in tax time.”
However, it is important to note that the deductions available under the law on the construction of a house built after 1987 remained unaffected.
Mr Beer said these properties account for 85% to 90% of the depreciation claims. This means that owners renovating older investment properties can claim deductions for qualifying capital and depreciation on newly installed property, plant and equipment.
“Assume a property was built in 1980 and the new owner bought it as an investment in 2021, then there are no capital works or plant and equipment depreciation depreciation available on the original structure,” he said.
“However, if it has undergone any kind of structural renovation since 1987, even by previous owners, capital works deductions could be available – in addition to any deductions related to newly added factories and equipment.
Mr Beer said it is critical for investors to conduct physical on-site inspections to ensure any addition or renovation is identified and valued by a specialist.
“Some renovations and additions are difficult to identify and see the magnitude of the works, so investors of older properties shouldn’t rule out depreciation right away,” he said.
“Instead, contact a specialist who will find deductions on renovations done and who will increase the annual cash return.”
Photo by Milivoj Kuhar on Unsplash.
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