Old homes have depreciation benefits too

Brought to you by Australian Property Investor

Investors in older homes can miss out on thousands of dollars in tax benefits if they assume depreciation works for those buying newer properties, according to Australian Property Investor (API) magazine.

Paul Bennion, the managing director of depreciation specialists DEPPRO, told API that investors buying homes 30 years and older are wrong to think they can’t pick up any depreciation benefits. And the mistake could be costing them $10,000, he says.

“Property investors who purchase an older home only focus on the capital value of the land and rental returns,” Bennion says. “Because the homes are so old, these investors assume that there are no depreciation benefits associated with this kind of investment. However, irrelevant of age, all properties contain depreciation benefits.

“While there will be no depreciation benefits related to the structure of an older home, there can be substantial depreciation tax benefits associated with the fittings and fixtures of the home. For example, old carpet in the home could still have a value of over $1000 which would be depreciated for tax purposes.”

Bennion explains that there are two distinct types of benefits related to property depreciation – depreciation on plant and special equipment and building allowance.

“While new buildings offer full depreciation allowance, older properties still maintain substantial allowances in plant and equipment regardless of its age,” he says. “A key part of ensuring that the investor obtains their full tax benefits is to have a professional depreciation professional prepare a comprehensive depreciation schedule of the property. This depreciation schedule can include more than 300 items.

“Typically, total depreciation tax benefits could amount to over $10,000 for these older-style 3x1 (three-bedroom, one-bathroom) homes depending on the fittings and fixtures.”