If you’re looking to renovate your investment property, the benefits extend beyond the potential increases in equity and rental returns.
Blogger:: Tyron Hyde, director, Washington Brown
We’re heading towards the end of summer and I don’t know about you, but every time I see the sun coming out and the weather improving I start thinking ‘What can I fix up around the house, or who can I get to do it?’
But before your excitement gets you too caught up in painting your cupboard a crisp lime green, or thinking whether your wallpaper should have a touch of yellow or orange, it is helpful to remember the benefits of renovating: equity growth, rental increases and the exciting benefits you may get with depreciation.
It is this third factor that I am going to discuss. After all, wouldn’t renovating be more rewarding if you knew that part of your expenses would come back to you through tax deductions?
HOW DOES IT WORK?
When you renovate an investment property, you can actually claim particular expenses that you incur as part of your renovation work. These can include the cost of that tile work you just did for the bedroom, or maybe that new edgy and urban kitchen sink. These things can actually get you a depreciation claim of 2.5 per cent per annum over a 40-year period. Even upgrading your plant and equipment items such as appliances and furniture can qualify for depreciation.
Essentially, the second you install the new items, they become depreciable. There aren’t many other areas in property investing where you can get results like this, so it’s worth making the most of them.
If you buy a property and you are going to renovate, it’s worth getting a quantity surveyor out before you begin. They will then attribute values to those items that are about to be removed. This can add up to a substantial amount, especially if the property was built after September 1987.
In order to do this, the property has to be income-producing prior to the commencement of the renovation.
If you have already gone ahead with your renovations, or will not have time to get a quantity surveyor in, then photos ofthe skip or pile of things being thrown out (and photos of them in situ) can help.
Once your hands are dirty and you have completed the renovation, get a depreciation schedule prepared on the new work that has just been completed. The depreciation process starts all over again with the added benefit of what you have just installed and changed.
MORE TAX DEDUCTIONS
With more tax deductions now available at the end of the next financial year, you can now go and really enjoy your summer, knowing you have maximised your finances and tax.