I just bought my first home and plan to renovate, furnish it and rent it out. I’ll be moving back to my parents house. Can someone tell me if i can still claim depreciate for the furniture used to furnish my house? Furthermore can i claim tax deduction on the renovation? Since it’s my own home i know i can not gain depreciation for the furniture, but what if i bought these furniture after i put the house for rent?
Any accountants or tax specialist out there that can help me???
Thanks
Use a quantity surveyor to advise on depreciation on furniture.
If you plan to rent out the property as fully furnished with this furniture you would be able to claim depreciation however determining the value of the furniture at the time you decide to rent it out will be the problem.
Most likely the quanity surveyor will want to know how long you have had the furniture and what it cost you to buy it . They will advise you on a part depreciation based on the furniture’s current market value probably based on the depreciation that has already occurred when you used the furniture for private use.
As the reno is improving the property from the condition it was in when you purchased it the tax office will see it as an improvement. The quantity surveyor will be able to advise you on what can be depreciated from the Reno.
Ask how many properties the accountant owns, the more they own the more they will know about property investment.I am not a registered tax professional and do not know your personal circumstances so this is general advice.
You would be better seeking the advice of a Quantity surveyor if you want to know how to pick a quantity surveyor look in April’s edition of Property investor magazine for an article labelled picking a quantity surveyor.
I have done a bit more research . You need to have the original receipts for the furniture. Next go to http://law.ato.gov.au/atolaw/view.htm?DocID=TXR%2FTR200018C7%2FNAT%2FATO%2F00008
To find out the effective life of your assets.
use diminishing value depreciation this is calculated by dividing 150 by the number of years of life. This gives you a percentage for the yearly depreciation amount. next calculate the number of days in this financial year you used the furniture for private use (days/365xdepreciation rate). This will reduce the starting amount and time value of the furniture. Calculate the number of days left in the year that you used the furniture for income producing purposes from the date the property is rented.
If for example you have 5 years of life ,the 5 years of life will be decreased by the amount of time used for private. Say you used 120 days as private. it would be Year1 120days /365 * depreciation percentage (unclaimable) & 245days/365 *depreciation rate (income producing claimable). Year2 365 days/365 days*dep rate, year3 365 days, year4 365, year5 365 days. Also leap years its 366 days.
Renovations you would have to prorata the life also between private and income producing. Also fixtures that are part of the building are classified as Capital building write offs and the rate is 2.5% (check this at the ATO web site under capital building write offs) however things like dishwashers, hot water systems are removable fixtures and have an effective life. Note Landscaping cannot be claimed as a depreciation item
check out
http://www.ato.gov.au/individuals/content.asp?doc=/content/57228.htmif you do not have receipts the value can be estimated by a quantity surveyor who will work out a depreciation schedule that you can hand to your accountant .
If you decide to also claim a building writeoff for the actual building there is a downside of diminishing your capital base which in layman terms means you will pay more in capital gains tax if you sell in the future .Although I am currently doing a tax agents course and have done tax law I am not qualified to give you advice and do not know your individual circumstances. Tthis advice is of a general nature so you can be better prepared to question your accountant or tax agent about depreciation.
Furthermore
You cannot claim the renovation as a repair as you are improving the property to a state that is better than when you purchased the property.
As an improvement you can claim future depreciation
The tax department is very aware of landlords making the mistake of claiming renovations on new purchases as repairs in the first year of ownership and will most likely call you in for an audit or question your tax return if you try to claim a renovation as a repair.
Also the money borrowed must be against the property being rented, this is another common mistake property investors make that gets them into trouble with the tax department.
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