This information is a simple guide only, we recommend you consult your financial advisor before considering any purchase.
Increase Tax Deduction in the first year
Let's say you decide to buy a property that's a little run down,
You believe that if you spruce up the property that it will not only add capital value but you can achieve a better rental figure
(rightfully so in most cases, see improving rental returns)
So you pull up the carpet, lay timber floor boards
Pull down the curtains and put up timber shutters
Get rid of the outdated furniture and replace it with new funky furniture
The improvements that you make WILL NOT BE TAX DEDUCTIBLE
HOWEVERall those items mentioned that have been pull up and thrown out can be written off, as long as they are depreciable as fixtures and fittings and have some value in your depreciation schedule, if your depreciation schedule says these items still have a value of $10,000 or $20,000 then
- You may have a $10,000 or $20,000 TAX DEDUCTION writing these items off.
- PLUS the new items go into your depreciation schedule at the value you paid for them, so now you have a higher depreciation this year and coming years.
- PLUS the "higher rent" you are now getting is helping to pay off the improvements.
(if the higher rent is more than the repayments on the improvements you may even be making a profit, often is the case with holiday/lifestyle apartments, see improving rental returns)
- PLUS the interest on the amount borrowed to do the improvements is tax deductible.
- PLUS the capital appreciation that you have received may have put you in a position to buy another if you wish.
WARNING:Always consult your financial advisor or accountant before planning improvements as only items that are listed on your depreciation schedule if replaced or improved can be written off.
An item deemed to be part of the building will not be written off, but will be slowly depreciated at a rate of 2.5% or 4% per year.
For more about depreciation click here
For more about taxation click here
