Case Study

A 10-Year-Old House Purchased for $397,000

By ordering a Duo Tax depreciation schedule and claiming depreciation on her investment property, Melanie went from a negative cash flow position to a positive cash flow position. In other words, she was able to start pocketing some income.

Melanie has lived in the property since 2010 and only started renting it out last year. Although she could generate rental income in the first year of turning the property into an investment, she would not have been in a positive cash flow position without claiming depreciation. She added $1,924 to her cash flow!

Here's how.

The Numbers: Melanie’s Investment Property

Here are some figures regarding Melanie’s investment property:

Purchase Type

she purchased the property in 2010 for $397,000 and turned it into an investment property one year ago,

Rent

her yearly rental amounted to $22,100 per year - which is a weekly rental of $425,

Expenses

the property’s expenses amounted to $22,811, covering her interest repayments, management fees, rates and maintenance.

While Melanie wasn’t able to claim deductions for the depreciation on the property’s existing plant and equipment (Division 40 assets), she was able to claim depreciation on the property’s capital works (Division 43) deductions.

Without Depreciation vs With Depreciation Services

The following cost breakdown shows Melanie’s cash position with and without depreciation in her first year of owning the property.

According to her Duo Tax depreciation schedule, Melanie could claim $5,200 depreciation in her first year of using the property as an investment.

A ten-year-old house purchased for $397,000

Melanie’s numbers without a depreciation claim

Annual Income

($425 x 52 weeks)

$22,100

Annual Expenses

$22,811

Pre-tax: Net Income

Income minus expenses: $22,100 - $22,811)

-$711

Total taxation loss

-$711

Tax Refund

(tax loss x 37% tax rate)

$263

Annual costs of the investment property

[net income + tax refund: (-$711) + $263]

-$448

Weekly loss

-$9

Melanie’s numbers with a depreciation claim of $5,200

Annual Income

($425 x 52 weeks)

$22,100

Annual Expenses

$22,811

Pre-tax: Net Income

Income minus expenses: $22,100 - $22,811)

-$711

Total taxation loss

[net income + depreciation: (-$711) + ($5,200)]

-$5,911

Tax Refund

(tax loss x 37% tax rate)

$2,187

Annual costs of the investment property

Total taxation loss [net income + depreciation: (-$711) + ($2,187)]

$1,476

Weekly loss

-$28

Difference of $37 per week/ $1,924 per year

Without depreciation, Melanie had to pay $9 out of her own pocket each week. However, by taking advantage of the Australian Tax Office’s tax breaks and making a depreciation claim, Melanie started generating $28 per week.

This means that Duo Tax was able to save Melanie a total of $1,924 in her first year of turning her property into an investment.

The great thing about her depreciation schedule is that it’s valid for up to 40 years! So, Melanie can continue saving money each year, as long as she continues to own the property.

Here’s How Much You Could Be Claiming

As you can see from Melanie’s scenario, tax depreciation schedules can make a significant difference in an investor’s cash flow each year.

However, if you’re still feeling unsure about committing to ordering a depreciation schedule, we have designed a tax depreciation calculator to help you estimate what you could potentially claim on tax depreciation.

This is an accounting tool designed to help estimate and calculate the declining value of capital works and plant and equipment assets and relies on accurate figures to present accurate estimations.

Our Duo Tax Rental Property Depreciation Calculator is free, so make sure to check it out!