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Can You Claim Renovations on an Investment Property?

depreciation, renovation, property, quantity surveyor

Can you depreciation on a renovated property?

Can a property you’ve renovated be depreciated?

Renovating an investment property not only increases your property’s value, and hopefully your profit margin – it also has a positive impact on the tax depreciation entitlements you can claim.

When you carry out renovation work on an investment property, you are entitled to depreciate certain aspects of the property.

First off, the construction cost spent as part of your renovation project can be claimed over a 4o year period, at 2.5% per annum. Examples of this include new kitchen cupboards, bathroom tiling and even a new toilet.

In addition to that, you can claim the upgrade to the property’s plant & equipment items – such as a new oven, dishwasher, curtains and blinds.

What are the most common mistakes investors make when renovating an investment property?

Most investors are keen on improving second hand property upon its purchase and focus all of their energy and attention to the execution of the renovation work. More often than not, these investors are inclined to adopt the mindset: “The faster the completion, the sooner the returns.”

While this is not entirely false, it can become a classic example of the “haste makes waste” concept. In a rush to get the desired outcome, most investors are not aware of the gains they can make even while they are still in the process of carrying out their final plan for the property.

Let us discuss the common mistakes investors make before renovating a newly bought pre-owned property:

  1. Immediately discarding items that can be claimed as depreciation assetsIt is easy for old and used carpets, blinds, curtains, stoves, dishwashers, and light fittings to present themselves as obsolete and no longer valuable when property upgrade is the first thing on your mind. But while these obsolete items might not be usable any more, it does not mean they cannot be claimed as a tax deduction.Each of these taxable items can actually be assigned a value and claimed as deductions against the investor’s tax. When investors discard these items, they are also indirectly discarding money. In cases where the items can no longer be recovered from disposal, photographic representation may suffice with the help of a quantity surveyor.
  2. Failing to obtain a depreciation schedule on the old property and its itemsNow you know that it is a mistake to throw old items right away before renovating. So what should you do with them? Firstly, do not dispose of them; rather, conduct an inspection with your quantity surveyor to identify the original value of each item. These values are the basis of the tax deductions that you can get by the end of your first year as the new owner of the property. Without these values, no tax deduction can be calculated in the first place.
  3. Not having another depreciation schedule done upon completion of renovationThe depreciation schedule that you got for your pre-renovated property is intended to back up your depreciation claims on its old and existing assets. This depreciation schedule does not cover the new assets that have been installed on your property as part of the renovation. To do this right, a new depreciation schedule will be required.
  4. Claiming new replacement items at once and in fullDon’t get too excited once you have renovated and think that whatever you have installed can now be written off immediately. A new item, such as replacing the carpet, has to be depreciated over its effective life, or the time frame specified for the said item to last before it needs to be replaced.  More often than not, claiming new items in full can give you problems with the ATO, except where the work is considered a repair – but that’s a whole different tax article!

If you need a depreciation schedule for your investment property – get a quote here or work out how much you can save using our free calculator.

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