Investment Property 101 – What is a Depreciation Schedule?

Investment Property 101 - What is a Depreciation Schedule?

If this is your first step into the world of investment property, it’s important to understand property depreciation. If you already have a comprehensive property portfolio, you likely already know about the benefits of depreciation and how it can benefit your bottom line when tax time arrives. Depreciation can help you to make significant savings each year if you take the time to understand how it works and exactly how you can benefit.

In the same way that you can claim for general wear and tear on a car that you bought for income-making purposes, you can make the same claim for depreciation of any investment properties you own against your taxable earnings. Anyone in Australia that buys a property for the purpose of generating an income is entitled to depreciate the property and its contents against their assessable income. It really does pay to understand the process of property depreciation and start preparing a tax depreciation schedule so you can file your claim.

Let’s take a closer look at what a tax depreciation schedule is and what you need to know.

What Is A Tax Depreciation Schedule? 

The primary reason for property investors to prepare a depreciation schedule is to decrease the taxable income related to the investment property. Although having a depreciation schedule drawn up can be expensive, it offers the best ROI in relation to all other property-related expenses.

A tax depreciation schedule provides your bookkeeper with all of the information they need to make a claim for depreciation to your investment property. This is an important document that should outline everything your accountant will need regarding your depreciation claims.

A depreciation schedule is needed to provide evidence of general wear and tear to your property. These might include, but are not limited to, carpets wearing, kitchen instalments needing replacement, tiling becoming damaged and other general wear to the property. If you have tenants in your building inevitably there will be more wear on the building over time so it’s important to prioritise creating a depreciation to depreciate these aspects of the property in small instalments each tax year.

Reduce your Taxable Income

Nobody wants to pay more tax than they need to. Savvy property investors can reduce their taxable income on their investment property significantly simply by preparing a depreciation schedule. As an income-generating rental property, you are entitled to apply for tax deductions when it comes to wear and tear on the property. Take this opportunity to reduce your taxable income and increase your bottom line at the end of the year.

Claim Depreciation On Renovated Property

If you are purchasing a property that has recently been renovated, you may be able to claim for depreciation. Hire a quantity surveyor to estimate the value of the renovation if the cost of the renovation work is unknown. Even if the previous owner of the property completed all of the renovations, you can still claim for depreciation according to the ATO. These savings can help you to increase your profits at the end of the year, leaving you with more to reinvest in your existing properties or to start expanding your portfolio even further.

Increase Your Income With A Depreciation Schedule For Your Investment Property

As a property investor, you need to do your best to reduce your costs where you can without impacting the quality of your investment or negatively impacting your tenants. Creating a property depreciation schedule is a simple way to reduce the taxable income on your investment property each year to improve your bottom line. By simply claiming for the depreciation of your property, you can make significant savings at the end of each year moving forward.


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