G'day Everyone,
I'm new to the property investing world, and am still in the research and education stage. This is probably a stupid question but I've tried doing a Google search and also a search of past topics on here and haven't been able to find a definitive answer.
If you had a property that is currently cashflow positive (positively geared), can you utilize a depreciation schedule to further increase the cashflow?
thanks, and please be gentle
Todd giles
Hi,
Welcome to the forum.
Firstly depreciation is dependent on the type of property, age and structure. So doesn't really matter if it's positive or negative geared…
To answer your question -"can you utilize a depreciation schedule to further increase the cashflow?" – YES you can, and this can really only be done if your on a PAYG income ( Ie your not self employed) – get your accountant to carry out a PAYG variation; this means instead of waiting till the end of the financial year to claim the $x benefit from depreciation, you can utilize this benefit earlier – at each pay ( your taxable income would be less).
Regards
Michael
Mick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Todd Giles wrote:If you had a property that is currently cashflow positive (positively geared), can you utilize a depreciation schedule to further increase the cashflow?
Yep.
I personally haven't seen a deprecation schedule that hasn't paid for itself within the first year or two irrespective of the properties age so well worth it IMO.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Thanks Shape and Jamie,
Hopefully all questions i have on here can be answered as easily as that.
Hi Todd,
Yes depreciation can be claimed as a deduction for positive and negatively geared property. The great thing about depreciation is that you can use the deduction to off set other income such as your salary which will increase your cash return. As a general rule, if you are paying income tax in any given financial year claiming depreciation will reduce the amount of tax you need to pay. Always speak to your accountant regarding your personal situation to determine the best course of action.
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Bradley Beer
BMT Tax Depreciation – Managing Director
Todd – as the others have said there is no issue with this. NRAS would be an example – or a property that simply pays for itself. Depreciation is always a great reminder to me that it is our land that is appreciating and not the building we own placed upon the land. Bradley could speak to this but getting reports done on older properties is probably less common that it should be.
Extending on the previous comments – all properties have costs (loan interest, rates, insurance etc) – a depreciation schedule can offset some of these thus increasing your overall cashflow position.
Even better when you do it inside a SMSF.
Remember when purchased outside a SMSF the Cost Base is adjusted on sale by the amount of Capital Allowance you have claimed over the period of ownership and Capital Gain Tax is paid on the net profit.
Inside a SMSF if the property is sold whilst in Pension phase there is no CGT so you get the benefit of the Capital Allowance claim during the owner to offset any other SMSF profit and don't have to pay it back on sale.
An excellent Tax haven for long term wealth.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
I'm looking at purchasing my first ip next year. Is a depreciation schedule worked out over a whole financial year or based on the time you've had it for.
i.e. If i settled on a property on say June 30th vs July 1st is there going to be a difference in the depreciation schedule, Would it be more beneficial to settle on 1 vs the other?
Todd Giles, good question. I would assume it is amortised but best to check with your accountant. Putting all you ducks in a row ALWAYS pays off
Hi Todd,
When the report is written up it will apportion the first years deductions over the balance of the year remaining, then the next 39 years (assuming the property is bought brand new) and the final year relfects the balance of days remaining.
In effect assume the property settles on June 1 you'll have i month depreciation claims in year 1, then 39 years of claims and finally 11 months in the final year. The interesting things is that some items will be classified as low asset value and their total value can be claimed in the first year (or balance thereof).
There are some financial advantages to settle late in the financial year – having said that it really is only small change compared to the bigger picture and your investment decisions should not be made to get a few extra dollars in depreciation claims.
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