ON TAX DEPRECIATION: 3 Mistakes Investors Make Before Renovating a Property
When you own a property and decide to conduct any kind of renovation to it, whether it’s major or minor, do know that the depreciation is affected. You take out money and spend it in order to let your visualized and desired alterations happen. Because the costs increase, the value also does — meaning you also have greater benefits to be claimed from tax depreciation.
Unfortunately, many investors do not completely understand or are probably not informed well about the relationship between renovation and depreciation and the crucial moves to be done so that everything goes and turns out smoothly. When investors are not fully knowledgeable, mistakes happen.
For you to know what to avoid and where to improve on as an investor (or if you know someone who needs this kind of help), below is a list of 3 mistakes that investors commonly commit before they renovate a property:
<1> DISREGARDING THE OLD PROPERTIES
Because of The Australian Taxation Office’s established boundaries concerning capital works deductions built before the 18th of July 1985, stating that they are not eligible for capital works subtractions, a usual misconception is found regarding the old properties because many believe that no tax depreciation benefits can be claimed for those.
It has become a common area of mistake as well because of that. The truth, however, is that there are still taxation perks you are permitted to get from older properties that have no set age limits, namely those that fall under plant and equipment.
Throwing old items away result to big chances of throwing away some benefits too. If you’re not sure about the possibility of getting something from your old property and the items in it, make sure to do your good research and inquiries first.
Ask a quantity surveyor to do an inspection within your property, and don’t dump your old items before doing so. The quantity surveyor will work on identifying every element’s initial value, which is the basis of the tax deductions you have the right to claim.
<2> JUNKING ITEMS WITHOUT THINKING
You might think, as some investors do, that some of your worn-out and not-visually-pleasing items in your property must be thrown away already because they would not be suitable for the “upgrade” that you’re planning to carry out. You might see them as trash and as a visual wrecker, but that does not imply their valuelessness.
As a matter of fact, they are taxable items to which values can be assigned to and can be claimed as a deduction. If you just junk items without knowing that there’s money in them, you’ll truly magnify the belief that there’s money in trash, but this time, it’s wasted. You’ll just put them to scrap together with the deductions you can get.
A quantity surveyor must be called to look into obsolete items that are difficult to understand the images of.
<3> OVERLOOKING A NEW DEPRECIATION SCHEDULE
Before renovation, you need a tax depreciation schedule, and right after it, you need a new one! What you removed and what you added to your property must be noted down in a tax depreciation schedule, and if you only have the pre-renovation version, then you will not get the benefits your new items have.
If you update your property, you must also upgrade your tax depreciation schedule so it won’t go out of date, and you’ll be able to claim what there is for you to bring home.
Hopefully, you’ve learned something from this piece and that it has given you an idea about what you should be careful with when it comes to renovations and claiming taxation benefits. Renovation has huge effects on your depreciation, so be well-informed and be wise.
AUTHOR BIO: Nicole Ann Pore is a writer, an events host and a voice over artist. Travel, health, shopping, lifestyle and business are among the many subjects she writes about. Through quality and well-researched writing, she informs and even entertains readers about things that matter. She is also interested in film critiquing and filmmaking. Giving all the glory to God, Nicole graduated Cum Laude from De La Salle University Manila, Philippines with a Bachelor’s Degree in Communication Arts.