Depreciation or claiming the lowering in value of items within your property or the property itself can be a great way to minimize your tax expenses and to maximize your return on investment I was lucky enough to be able to sit down with quantity surveyors.
We are the largest corn a quantity surveyor company in all of Australia we sat down and we talked about the benefits of depreciation and I've broken this into a ten-part series to help you easily understand depreciation and how you can use it to minimize your tax and maximize your return.
If you want to see the links to all of the episodes head over to Capital Claims she action and you can get all the links there or if you want to go specifically this property that's on property comate you forward such.
So today I talked to Quantity surveyors about what exactly depreciation is and what a depreciation schedule is and why should we get one done I'll be back at the end of the interview to summarize your daily dose of property education and inspiration and today I am very grateful to have with me quantity surveyors from tax depreciation.
So they do depreciation schedules and help investors maximize their return on investment through the depreciation thank you for coming today okay so let's start super basic and let's look at what is a depreciation schedule.
And why shouldn't invest our get one done but all investment properties have a depreciation available effectively the things in there are getting older and wearing out the tax either says that they'll allow us to claim a part of the cost of these things into you as a deduction so you know the one day the carpets going to wear out and things like that.
So we put a cost on those things the tax office accepts and work out how much did actually rather to claim for them so it's actually it's not in terms of doing I guess doing our calculations and things that it's not money that as an investor group hanging out each and every month or every year it's.
Actually I guess what they call phantom cash flow in a way in that you're claiming the lowering in value of an item even though you still have that item it's not actually affecting financially yet yeah it's like it's a because it's a what they call a non-cash tax deduction.
You know you make other deductions in relation to your property for interest and other things and losses but you pay those things out depreciation is just our stuffs getting older and wearing out so we get to make a deduction in to you for that without actually having to pay that money out.
So it makes it much more lucrative sort of like the Phantom cash flow I suppose yeah because you're not paid out but you get a deduction for so would it be safe to say that depreciation on a property is similar to the way business appreciates a car in that they're using the car for income generating purposes.
It's going down in value each year’s quantity surveyors all know cars do and they're claiming that decreasing value each year is that similar to property very similar any anything you use in your business often you get to depreciate like your car for example.
Because your car is actually depreciating in value as well the difference is and people often go but isn't my property appreciating that's why I'm buying property now the fact is that the property itself hopefully if you bother our mind is appreciating but the building itself is actually going to wear out things are going to wear out.
So that's depreciating so even though quantity surveyors are appreciating their value of the property we're actually depreciating the building and contents yeah so point before that so people need to be able to separate the value of their property as a whole in terms of what it's worth.
If they're going to resell it or what the bank's reevaluate out as to the physical building that is on the piece of land and that wooden brick structure is actually going down in value over time as wear and tear there's it that's right exactly right and you know the it's a hard concept for people sometimes to get the head around.
Because we wanted to go up and a kind of dust but a year old property is not as good as a new part in respect to you know things are going to have to get replaced one day the carpet it's going to wear out the stone is going to break down and one day hot water heaters going to need replacing and look yes most definitely the dishwasher.
They break down all the time so the fact is that you get to climb a depreciation related to that basically okay so just to summarize depreciation is the lowering of value of items within your property or the construction of the property itself a depreciation schedule is a report.
That is done by a quantity surveyor like that gives you the breakdown of your property and all of the items within your property and how much you can depreciate and how fast they depreciate there is a lot of detail that goes into these depreciation schedules.
And it's not something that you should or really can do yourself so quantity surveyors do suggest going out there and getting a report done so that you can maximize your return on investment and maximize your tax savings in a future.
Quantity surveyors was saying that the average depreciation is anywhere between five and ten thousand dollars now obviously newer properties have more depreciation and all the properties may have less about five to ten thousand dollars in paper losses that you can claim each and every year can mean massive savings for you.
So it's definitely something that is worth looking into you can check out by going to quantity surveyor comet you or you can just Google cornice avail in your local area to find a local quantity surveyor for full transcriptions or the downloadable PDF head over to Capital Claims.
And today's episode is brought to you by my own product which is the advanced property calculator when you're going out and you're investing and trying to find property it's really important that you understand how the cash flow of that property is going to impact you.
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