How much do you know about depreciation on your rental property?
Depreciation is a reduction in the value of an item over a period of time. Much of this reduced value is due to wear and tear and the general ageing of furniture and fittings you've bought for your rental property.
By understanding what depreciation is, you can reduce tax and know your rights under the laws relating to depreciation. You can combine assets worth less than $5000 rather than depreciating them separately.
How to claim depreciation on rental property?
You can no longer claim depreciation on the rental property's land or buildings however items that are deemed chattels can be depreciated, including things like appliances, bedding, drapes, cutlery, furniture, glassware…even mailboxes.
To maximise your depreciation deductions and reduce tax at the end of the year, you must accurately identify the cost of each chattel. If you’ve just purchased a new chattel just look at the price tag. Existing chattels aren’t so easy.
When you buy a property, you also buy an array of chattels; carpets, stoves and light shades are just a few of the better-known ones. How do you put a price these items? You could do your own chattels valuation by researching the correct market value of each item but by doing it yourself might mean you miss out on maximum deductions.
The alternative is to employ the services of a professional chattel valuation expert. They can do the hard work for you for several hundred dollars. An expert will give you a full breakdown of chattels, their values and the IRD depreciation rates. This will also reduce your risk of penalties in case of an audit. Nicer still, you’ll probably maximise your depreciation claim.
In many cases, it may not be worth the effort but some properties would have a number of items that could fit the bill. The newer it is, and the higher it is in value, then a professional valuation is probably your best bet. If it’s a new investment, get the chattel valuation done within six months of purchasing your rental and, obviously, before you submit your tax return.
