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Understanding Depreciation Scheduling: A Landlord’s Guide

Posted On Tuesday, 22 December 2020 22:37
Understanding Depreciation Scheduling: A Landlord’s Guide

If you’re a landlord, a depreciation schedule could be your saving grace. After all, you want to maximise your profits as much as you can. Many landlords don’t fully understand the advantages that a depreciation scheduling can offer. Without the right knowledge, it can be difficult to find the right people to help. This could result in you failing to maximise your deductions to their full potential.   

There are many different aspects of depreciation schedules that you need to understand as a landlord. With a better understanding of depreciation schedules, you’ll be able to create an effective tax depreciation schedule which will benefit you and your tenants moving forward.

Continue reading to learn more about the ins and outs of depreciation schedules and the methods of creating one.

Depreciation VS Tax Write-Offs  

To set a depreciation schedule, you need to understand what depreciation actually is. In a way, it is similar to a tax write-off, but there are some subtle differences to be aware of. 

Tax write-off's in regards to a property include things such as mortgage insurance, property taxes, maintenance, and insurance. These expenses can only be deductible in the year when money is spent. Depreciation, on the other hand, distributes deduction across the useful life of the property. This means that for all the taxable years the property is running, you can get a rebate. How it’s different from tax write-offs is that it includes usual wear and tear which will need to be repaired and maintained regularly. Therefore, if you’ll be operating the property for a while, it is in your best interest to set up a depreciation schedule.    

Methods Of Depreciation  

Two main methods are used in depreciation schedules. The first is the diminishing value method. This focuses on the amount your property decreases in value over its lifespan. You’re more likely to claim more in the first few years since the decline will be quicker, but over time it will even out and your deductions will be lower. If you’d rather a more stable depreciation, then you may want to use the prime costs, or straight line, method. Within this method, your depreciation will stay at the same level over time, meaning you’ll claim the same amount each year. Either method is beneficial to use but it’s down to your own personal goals for your property and income.     

Getting A Helping Hand  

Landlords aren’t expected to figure all of this out for themselves. A specialist quantity surveyor can put together your entire depreciation schedule for you and all you need to do is supply the information. There are a lot of different quantity surveyors out there, so make sure you hire one who specialises in depreciation schedule creation. They should be experts in ATO legislation and what you need to do to stay compliant, ensuring your deductions are maximised. You’ll save money with your accountant as there will be less time in the office going over simple mistakes, or letting them help you with it. If your surveyor is a registered tax agent, their services will be completely deductible, meaning there is no need to worry too much about the cost. 

Now Is The Time to Create A Depreciation Schedule  

Without a depreciation schedule in place, you could be losing a lot of money on maintenance, repair and upkeep costs related to your property. Once you’ve found a quantity surveyor you trust, they can use their expertise to help you the best they can. With a depreciation schedule in place, you can get back to focusing on looking after your property and ensuring your tenants are happy, safe in the knowledge that you will be prepared for the end of the tax year. 

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