How to immediately claim tax deductions for your investment property

Depreciation is a gradual decline of property and assets over time. It’s usually thought of as a high-value, slow-burn deduction as it can take up to forty years for an entire property to depreciate. For most property and assets, they have to be depreciated over 40 years, however, at the moment there is an immediate deduction available for depreciable assets. This should be taken advantage of as it could result in you saving thousands of dollars in tax. This article details what the immediate tax deduction is for investment properties, and how to ensure that you satisfy the rules.

What is this immediate tax deduction?

Plant and equipment assets are those that can be easily removed or are mechanical in nature. For investment properties, they often come in the form of furniture, kitchen appliances, air conditioners, curtains, and carpets. When plant and equipment assets cost less than $300, you may be eligible to claim an immediate tax deduction. This means you can instantly claim the cost in the year of purchase. There’s no cap on the number of immediate deductions you can claim per year, so you can easily utilise this to your advantage and claim thousands.

What are the requirements of this rule?

Only some plant and equipment assets meet the eligibility requirements to be immediately deductible. When preparing your tax depreciation schedule, a specialist quantity surveyor will analyse the asset against the relevant rules. They will consider the initial cost, the purpose of the asset and whether it is practically the same as other assets, and if it’s part of a set.

The rules to be eligible are summarised below:

1. It must be a stand-alone asset
2. It must not be one of several identical or substantially identical items
3. It must cost $300 or less
4. It is used mainly to produce non-business assessable income

What happens if the asset costs less than $300 but doesn’t meet the rules?

If a residential investor can’t claim the immediate deduction, the deduction will be determined using the general rules of depreciation. Alternatively, an investor may choose to allocate the asset to what’s called a “low-value asset pool”. Assets with a value less than $1,000 can be deducted using a low-value pool, allowing the asset to depreciate at an accelerated rate. This can also apply if an asset was eligible for an immediate deduction in the purchase year but, for a variety of reasons, was not claimed. In this instance, an asset that would’ve qualified for the immediate deduction in the purchase year can instead be claimed using the low-value pool or effective life rates.

Depreciation can be black and white, however, in some instances, it can be difficult to determine whether it is immediately deductible or if some other rules apply. It is absolutely essential to contact an accountant to determine the tax effect of an asset you are about to purchase for your investment property. Link Advisors can help clarify things and identify if you need a Quantity Surveyor to provide you with a depreciation schedule.