It should only be expected that a property will experience wear and tear over time, from a few bricks chipping away, or the paint losing its lustre, to the air conditioner dipping in morale.
And no matter how careful the investor is – diligently staying on top of maintenance works – an investment property can still wane over the years.
But, the harsher effects of time won’t necessarily mean that your hard-earned investment will crumble in market value, or end up costing you more than you bargained for.
In fact, come tax season, something called depreciation could help make up for this wear and team. Depreciation is a term that could see you enjoying more money back into your pocket from day one of having settled a property, as Tyron Hyde from Washington Brown shares with Your Mortgage.
“Just like you can claim the wear and tear of a computer against your taxable income for a business, you as a property investor can claim the wear and tear of a property investment against your taxable income,” Hyde explains.
“Depreciation helps you manage your cash flow because it reduces your taxable income, and the good news about a depreciation schedule, is that the depreciation is already within the property.”
To help provide a generic indication of what a typical depreciation claim could amount to for an investor, Hyde pitches three different property types.
“If you were going to buy a property that was built between 1987 and the year 2000, you can roughly claim about $4,000 in the first year and $40,000 over the first ten years. If the property was built between the year 2000 and the year 2018, you can claim roughly $6,000 in the first year and $60,000 over a ten-year period. If your property is brand new, it might elevate to $15,000 and about $90,000 over a ten-year period.
“And we used a 10-year period, but it will vary depending on the age of the property because when the property is brand new, you can claim a building allowance of 40 years which means that if you buy a property that’s 20 years old, you’ve got 20 years left.”
To learn more about depreciation, including how much a depreciation schedule typically costs, watch our video interview with Tyron Hyde.