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Depreciation - Can You Claim Previous Deductions?

Depreciation - Can you Claim Previous Renovations?

It’s not uncommon for investors who purchase existing properties to assume that any renovations which have taken place prior to settlement cannot be claimed.

Those who assume this couldn’t be more wrong. Deductions for income producing properties can be claimed in two ways; as capital works deductions for the building structure, and as plant and equipment depreciation for any easily removable assets.

While restrictions apply to capital works deductions based on the construction completion date of the property, there are no date restrictions for plant and equipment assets.

 

Plant and Equipment, irrelevant of age, qualify for either annual depreciation or the loss can be claimed later as capital loss when you dispose of the property to offset any capital gain. This covers removable assets such as, Kitchen appliances, Smoke detectors, Security system Window treatments,  Hot water system, Floor coverings to name a few.

 

NEW – Unused Plant & Equipment Items

SECOND-HAND – Previously Used Plant & Equipment Items

  • These items depreciate at an accelerated rate from 5% to 40% and between 5 to 20 years.
  • Depreciation on these items can be claimed annually.
  • The depreciation life of these items will commence when the property begins producing income (i.e. a tenant started paying rent). We will also assess the items to determine their value and expected lifespan.

 

  • These items depreciate at an accelerated rate from 5% to 40% and between 5 to 20 years.
  • Rather than annually, depreciation for these items will accumulate, and the total loss can be claimed to offset any capital gain when you dispose of the property.
  • The depreciation life of these items will commence when the property begins producing income (i.e. a tenant started paying rent). We will also assess the items to determine their value and expected lifespan.
  • When any item is replaced – you can begin to claim the new item annually.

 

  • IMPORTANT NOTE: SECOND-HAND P&E If you don’t get your existing second-hand items valued – you can’t claim them at all!

 

While income producing property owners can claim capital works on any property constructed after the 15th of September 1987, often properties older than this will have undergone renovations since this date.

 

Owners of both old and new properties can claim renovations done by previous owners so long as the work was commenced within the legislated dates.

 

Unlike plant and equipment assets, capital works deductions will be calculated based on the historical cost of construction and deducted at a rate of 2.5 per cent per year over 40 years.

 

For example, an investor purchased a property originally constructed in 1993. A deck was added to the property in 2005. The owner is eligible to claim capital works deductions for the remaining eighteen years on the original construction and thirty years on the construction costs involved in the deck at a rate of 2.5 per cent per year.

 

To discover what depreciation deductions you can claim in an investment property, contact Real Property Matters on 1300 776 669, a professional and money saving service to property investors across Australia.

 

- Mark Forde