I have recently had depreciation schedules done for my 2 IP's…. for the financial year the two properties depreciation adds up to just over $13,000. Can anybody tell me what this figure will equate to after my tax return? Is this figure just an amount that is tax deductible from your financial year income? Any help would be greatly appreciated. cheers
tuggerHi,
Forgive the technical terms, but…
You can claim the depreciation on your investment properties as a deduction against your assessable income, thereby reducing your taxable income.
If you like, the amount of your tax shield is: Depreciation Claim * Average Marginal Income Tax Rate.
Let's look at an example to flesh this out, assuming the following:
Salary: $80,000
Rent: $20,000
Deductions: $25,000
Depreciation: $13,000In this case, your assessable income is $100k ($80k + $20k), and your allowable deductions are $38k ($25k + $13k). Therefore your taxable income (Assessable Income – Allowable Deductions) is $62k ($100k – $38k).
The amount of the tax shield of the depreciation can be worked out as follows:
Tax on Taxable Income of $75k ($80k + $20k – $25k) = $17,850
Tax on Taxable Income of $62k ($80k + $20k – $25k – $13k) = $13,950Tax saving on $13,000 depreciation claim = $3,900
Hope this makes sense. Thanks for drawing me back in to my deep dark accounting past!
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Good onya Steve…thanks for that example…makes it much easier to apply to my situation…cheers
tugger
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