Home renovations are big in Perth right now because a lot of people are realising the benefits of renovating their current homes instead of buying, selling and moving. However, home renovation is also becoming more popular with property investors because of one big benefit: deductions for property depreciation.
When you renovate a rental property, you can often claim thousands of dollars on the renovation. Some financial planners recommend taking as much advantage as possible of the deductions that are available during the first five years after renovation.
As a building ages, it “wears out.” Even though the property it sits on is gaining value, the home itself is seen as losing value. That loss of value is called “property depreciation.” According to the Australian Taxation Office (ATO), you are allowed to deduct the amount of that depreciation from your income. Any property owner who is receiving income from a property is allowed to claim depreciation.
A lot of accountants and landlords miss the property depreciation deduction because it is a “non-cash” deduction. You don’t have to spend any money to get the deduction. When renovating, the first thing to do is to fill out a pre-renovation report.
If you are replacing items like kitchen appliances, carpets, an air conditioner or a water heater, you might be able to claim the old items as a tax deduction. Any items claimed in this manner can be written off in the year during which the renovation occurred.
Anything you put into the building that is new can be depreciated over a specified period of time. This is where it starts to get complicated and we recommend you talk to a depreciation expert.
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Whether you are looking to expand a rental property, renovate it or both, we are here to help you. We have more than 70 years combined experience in the industry and have worked with numerous landlords and property investors.
To learn more or for a free consult, call us today: 1300 948 094.