More and more Australians may be choosing to live in their investment property before it is rented out, placing thousands of people at risk of missing out on lucrative tax deductions, according to BMT Tax Depreciation.

New data from the company relating to the 2018/19 financial year to date shows over one in four people had lived in their property prior to renting it out, representing a jump of nearly 2.3 per cent over the previous financial year.

BMT CEO Bradley Beer said that following changes to tax depreciation laws, many of these people may be at risk of losing thousands of dollars in tax deductions at a time when the property market is already experiencing deteriorating conditions.

“Owners of income-producing investment properties can claim lucrative tax deductions for ‘plant and equipment’ items in a property such as carpet or air conditioning units. However, under the new laws, if an investor is living in a property at the time the assets have installed the items will be considered previously used and cannot be claimed,” he said.

“Our data suggests that a growing number of people are opting to live in a property while renovating and before renting it out.

"If they choose to make these types of additions to their property during this time, they could lose out on thousands of dollars of tax deductions.”

Capital works deductions for structural items such as new walls, kitchen cupboards, toilets and roof tiles are unaffected by the legislation changes and can be claimed by owners of income producing investment properties.

During the 2017/2018 financial year, 30.9 per cent of requests for BMT Depreciation schedules were for brand new properties.

This is up from 26.4 per cent of all depreciation schedule requests received during the 2015/2016 financial year.

Mr Beer said investors who are planning on installing new plant and equipment assets should make these additions after they move out of the property and it has been listed for rent, so as to potentially increase their depreciation deductions and improve the cash flow generated by the investment property each year.

“The new legislation does not affect buyers of new properties so these properties typically hold the most lucrative value for investors from a tax perspective,” he said..

“This fact, and the new stock that has come on the market in recent years, may be contributing to the increased demand for new investment properties over second hand properties.”

Despite the rule changes, BMT are reminding investors that there are still lucrative tax deductions on offer for most investment properties.

“We found an average of $8,212 in deductions in the 2017/2018 financial year for all residential investment properties,” Mr Beer said.

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