BMT Tax Depreciation would like to remind property investors of the importance of ordering a depreciation schedule for any recently purchased properties.

Even if an investment property has only been owned for a short time there are still depreciation benefits available.

Here BMT will go through how partial year deductions work and how assets can be claimed.

Partial year depreciation deductions

Property investors can claim pro-rata depreciation deductions for the time their property is rented out or is genuinely available for rent.

To be genuinely available for rent, a property must begiven broad exposure to potential tenants and in a condition that wouldn’t deter a tenant from renting the property.

Partial year deductions are common in holiday homes where tenants may only stay for short periods sporadically throughout the year such as in busier times like school holidays, New Years and on long weekends.

In cases where a property is used for both private and income-producing purposes, the owner is eligible to claim deductions where it is income-producing. This amount would be calculated as a percentage; if the property was used for an income-producing purpose eighty per cent of the time then eighty per cent of all eligible costs are tax deductible.

Another situation where partial year deductions apply is when the property was previously used as a primary place of residence. The immediate write-off rule and low-value pooling can be used to maximise deductions in a partial financial year.

Immediate write-off

The ‘immediate deduction’ Is a straight-forward incentive for residential property investors. It allows an immediate tax deduction for any new asset that costs $300 or less.

For instance, if you purchased a light fitting valued at $150 for your investment property, you can claim 100 per cent of the cost in the year of purchase.

Low value pooling

Assets that cost, or have a value, less than $1,000 can be placed in a low-value pool. This pool unlocks depreciation sooner, as assets contained within the pool can be claimed at a rate of 18.75 per cent in the year of purchase regardless of the length of time that the property has been owned and rented. After the first year, the remaining balance of the item can be depreciated at a rate of 37.5 per cent per year.

There is a difference between low-cost and low-value assets.

Low-cost asset: a depreciable asset that has an opening value of less than $1,000 in the year of acquisition.

Low-value asset: a depreciable asset that has an opening value of greater than $1,000 in the year of acquisition but the value after depreciating over time is now less than $1,000. This will only apply if you have previously used the diminishing value method.

For instance, if you purchased an air conditioning unit valued at $1,700 it can be depreciated using the diminishing value method. Once its depreciable value falls under $1,000, it will then be added to the low-value pool as it’s considered a low value asset. However, if the air conditioning unit was purchased for $950 it would automatically be added to the pool as a low-cost asset.

It’s important to note that once an asset is added to the low-value pool it cannot be taken out.

BMT’s specialist site inspectors conduct physical site inspections, ensuring an accurate tax depreciation schedule is completed that maximises deductions and is ATO compliant. To learn more about the importance of partial year claims call the experts on 1300 728 726 or Request a Quote.

The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters. 

Read more from BMT Tax Depreciation: 

What is rentvesting and how can it help your investment strategy? - BMT

Is early in the New Year a good time to buy an investment property? - BMT

Top 4 things tenants want in a rental - BMT