Depreciation Schedule for Rental Property: What You Need to Know

Depreciation schedules for rental properties, why are they so important?

If you own a rental property (whether acquired new or second hand from a previous owner), you need to know how to maximise the return on your investment. If you’re like most property owners, you don’t want to pay more than you have to in taxes. After all, that’s money that could have been put to better use in your business or home. The good news is that as both a property investor and an Australian taxpayer you are entitled to claim significant depreciation tax write-offs on your property investment asset.

Therefore, all property investors will need a depreciation schedule for rental property owned.

How to take advantage?

The means to achieve this is via using a tax depreciation schedule (tax depreciation report)

With this rental property depreciation schedule, the landlord has the ability to reduce their taxable/assessable income by an average of $6,000 – $12,000 (more for higher specification homes) each financial year over the effective life.

The tax depreciation schedule is an important tool for the owner of a rental property as it both verifies and certifies the entitled tax depreciation claims that they can include in their yearly income-tax return as capital/building depreciation allowance and deductions (i.e. tax write-off).

Furthermore, these tax write-offs will most likely be the biggest single deductions, having the most weight in resulting in a significant income tax reduction or better yet a cash tax return from the Australian Tax Office (ATO).

The schedule identifies capital works deductions and capital works allowances (via a property inspection) as well as the assets effective life (how many years that the asset can be claimed against), residual value (the value left in the asset to write-off).

The depreciation schedule includes the building component (capital works and improvements) as well as the depreciable assets (e.g. carpets, blinds etc.), fixed assets and their residual values.

What is the depreciation rate for a building (residential investment property)?

The depreciation rate for a building is a very valuable concept for property investors because it allows investors to depreciate the investment property in the same way as the businesses depreciate their assets.

To put it simply, the depreciation rate is the decrease in the value of your property over a certain period of time. It is calculated by dividing the total construction cost (estimated by a qualified quantity surveyor in the absence of actual costs) of your residential property by a set percentage rate over the effective life of the building

On a residential rental property, this rate of deduction is 2.5% of the construction cost year-on-year, annual allowable tax deductions that are made by landlords who own investment properties (new and older property) in Australia.

Common questions in respect of depreciation schedules for rental properties:

How do I calculate depreciation on rental property?

What is the best depreciation method for a rental property?

What happens if I don’t depreciate my rental property?

Is it mandatory to depreciate rental property?

Do I need to wait for tax time to organise a property depreciation schedule?

Can you write off renovations on a rental property?

Can rental property depreciation offset ordinary/taxable income?

Difference between Capital works deductions and allowances:

For a more thorough FAQ on tax depreciation, follow this link.

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