Depreciation or claiming the lowering in value of items within your property or the property
itself can be a great way to minimize your tax expenses and to maximize your return on
investment.
I was lucky enough to be able to sit down with Brad from BMT Quantity Surveyors.
Brad is the managing director of BMT and they are the largest quantity surveyor company
in all of Australia.
We sat down and we talked about the benefits of depreciation and I have broken these into
a 10-part series to help you easily understand depreciation and how you can use it to minimize
your tax and maximize your return.
If you are going to see the links to all of the episodes, head over to onproperty.com.au/depreciation
and you can get all the links there or if you want to go specifically to this property
that is onproperty.com.au/140.
So today, I talked to Brad about what exactly depreciation is and what a depreciation schedule
is and why should we get one done.
Ryan: What is a depreciation schedule and why should an investor get one done.
Brad: All investment properties have a depreciation value.
Effectively, ___1:50___ and the tax office says that by the elapse of time _____ deduction.
So one day the carpets are going to wear out and things like that and so we put a cost
on those things the tax office accepts and work at how much deduction ____.
Ryan: So it is not in terms of doing our calculations and things like that.
It is not money that as an investor would pay out each and every month or every year.
It is actually, I guess, __2:20___ cash flow in a way in that you are claiming the lowering
in value of an item.
You still have that item, it is not actually effecting you financially yet.
Brad: It is like it ___2:32___ what they call a numb cash tax deduction.
You may get the deductions _____ property for interest and other things and lost to
expect.
You pay some debt, depreciation is just of stuffs getting _____ for that, with that actually
having to pay that money out.
So banks have much more lucrative _____ because you do not pay it out, you will be getting
deduction for it.
Ryan: Would it be safe to say that depreciation on a property is similar to the way business
depreciates in that they are using their car for income generating purposes, it is going
down in value each year.
We do not know what cars do and they are claiming that decrease in value each year.
Is that similar to property.
Brad: Very similar.
Anything you use in your business often you get to depreciate like your car for example
because your cars actually depreciate in value as well.
Yet, the difference is that people often go ______ my property appreciate, that is why
I am going.
The fact the property itself _____ appreciate but the beginning itself is actually going
to wear out.
Things are going to wear out, so that is depreciated.
Even though we are appreciating the value of the property, we are actually depreciating
the building contents.
Ryan: So people need to be able to separate the value of their property as a whole in
terms of what it is worth if they are going to resell it or what the banks revalue it
at as to the physical building that is on the piece of land and that would not ______
is actually going down in value over time as wear and tear.
Brad: It is a hard concept for people sometimes to get the head around because we wanted to
go up and it kind of does.
A 20-year-old property is not as good as a new one in respect to things that got to have
to get replaced from that.
The carpet is going to wear out.
The stair is going to breakdown one day.
Ryan: The hot water heater is going to need replacing.
Brad: Definitely.
So the fact is that you get to climb the depreciation a bit later to that.
Depreciation is the lowering of value of items within your property or the construction of
the property itself.
A depreciation schedule is a report that is done by a quantity surveyor like BMT that
gives you the breakdown of your property and all of the items within your property and
how much you can depreciate and how fast they depreciate.
There is a lot of detail that goes in to these depreciation schedules and it is not something
that you should or really can do yourself.
So I do suggest going out there and getting a report done so that you can maximize your
return on investment and maximize your tax savings.
In a future episode, Brad was saying that the average depreciation is anywhere between
$5,000 and $10,000.
Obviously new properties have more depreciation and older properties may have less.
About $5,000 to $10,000 dollars in paper losses that you can claim each and every year can
mean massive savings for you.
So it is definitely something that is worth looking into.
You can check out BMT by going to bmtqs.com.au or you can just Google quantity surveyor in
your local area to find a local quantity surveyor.
For full transcriptions or the downloadable PDF, head over
to onproperty.com.au/140.