The depreciation clock is ticking on older investment properties #4 June 2023
The depreciation clock is ticking on older investment properties
Depreciation will run out soon on some older investment properties, but in the meantime, you’ll be surprised at how much depreciation many still have in them.
And that applies to residential and commercial properties. We wrote about commercial in our last Something You Didn’t Know About Depreciation. You can find it here.
But let’s talk about residential properties now.
Many accountants, and therefore their clients, think that older properties have no depreciation in them. Not true. Perhaps those changes in 2017 have confused people – more about them later. Perhaps it’s been too hard to estimate the depreciation in older properties? We do that all the time. We even have a handy depreciation estimates table you can use.
Key points for depreciation in older investment properties
- Older properties can still yield great depreciation for your clients. It’s always worth a call.
- The 2017 changes to depreciation did NOT affect depreciation claimed on the building. The changes only affect the Assets in the building.
- The Instant Asset Write-Off is due to replace Temporary Full Expensing from 1 July 2023.
Older properties can yield great depreciation
Let’s look at some dates.
Any residential property where construction commenced after September 16, 1987 can be depreciated. That’s the building (Div 43) we are talking about.
Let’s say a client has just bought a house built in 1988. The building will keep depreciating until 2028. So while time is running out, it has another 5 years of depreciation left in it. We did one of these recently…
It was a home built in 1988 and we estimated the build cost was $70,000. That’s $1,750 per year for the next 5 years.
But even better, like all older homes, this one had been renovated by a previous owner. Our Quantity Surveyor spotted that straight away. It was the usual reno: kitchen, two bathrooms, and a general tidy-up. It happened around 10 years ago, but would have cost $60,000. That work depreciated at $1,500 for another 30 years from now.
So the total depreciation on that modest 35-year-old home for the next 5 years is over $3,000 per year. A nice deduction – too nice to not claim.
If there are photos of the property online, in a quick phone call we can tell you or your clients how much deprecation might be in the property before we do anything – it’s always worth call on 1300 660033. Is there a property you’d like to enquire about now? You can use your booking link, or send us an email at firstname.lastname@example.org.
The 2017 Changes to Depreciation
Not as bad as people think. There are still some people who don’t quite understand them. The main message is that the 2017 changes did NOT affect depreciation claimed on the Building.
The 2017 changes to depreciation only affected the Assets (Div 40), eg. appliances, floor coverings etc, in second-hand buildings. That’s why there is often still good depreciation to be claimed on old apartments and houses.
Commercial properties were, of course, not affected by these changes at all.
The Instant Asset Write-Off returns
There has been some mischief perpetrated around the demise of Temporary Full Expensing. You would have heard it’s ending on June 30.
There are many companies out there who sell Plant and Equipment items to businesses who have been telling people that they need to get in quick and buy stuff because the sky is falling and it’s all over.
Not true, again.
While Temporary Full Expensing is disappearing because it was, well, temporary, our old friend the Instant Asset Write-Off is back with a threshold of $20,000 per item for businesses with a turnover of less than $10 million. So the sky has not fallen.
It’s all about us this time.
Depreciator is celebrating over 20 years of doing Depreciation Schedules. It’s all we do, which is why we are so efficient and why our turnaround time is still the best in the industry.
There are core staff, including some of our Quantity Surveyors, who have been with us for that whole ride!
Steve, who many of you know, is taking some extended leave from July, but Scott will still be here. Many of you also know Sarah, and she surely has another 20 years in her!
Enquire now for a property-specific assessment
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