Depreciation advice could mean thousands

Depreciation advice could mean thousands

Investors who own real property containing fixtures and fittings (fittings are removable items such as light shades, whereas fixtures are things which are attached to the building, the removal of which may cause damage, such as air-conditioning units and the like) are able to depreciate those fixtures and fittings over the life of the item. There are two methods of depreciation allowed by the Australian Taxation Office, the prime cost method and the diminishing value method.

The prime cost method uses a lower percentage rate of depreciation resulting in consistent deductions each year.

Some analysis has shown that it is more profitable for an investor to choose the diminishing value method if the property is the only going to be held over a short period of time. One study showed a difference of nearly $8000 difference in the two methods over a period of five years with the plant and equipment valued at $33,000.

Investors should get taxation advice from their accountant prior to the lodgement of their first tax return after buying the subject investment property so that the depreciation method most advantageous to their investment strategy can be fulfilled.

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