Case Study

A 10-Year-Old House Purchased for $490,000

By ordering a Duo Tax depreciation schedule and claiming depreciation on her new property, Skye went from being in a negative cash flow position to actually generating income from her investment property.

She saved $4,218 in her first year of claiming property tax depreciation!

Here's how.

The Numbers: Skye’s Investment Property

Here are some figures regarding Skye’s investment property:

Purchase Type

she purchased a 10-year-old house for $490,000 in 2016 and rented it out immediately,

Rent

her yearly rental amounted to $25,480 per year - which is a weekly rental of $490,

Expenses

the property’s expenses amounted to $27,334, covering her interest repayments, management fees, rates, and maintenance.

Skye can claim deductions for the depreciation on the property’s plant and equipment (Division 40 assets) and the property’s capital works (Division 43) deductions because the second-hand property depreciation rules regarding division 40 assets were only amended in 2017. The new rules only apply to property purchased after the 9th of May 2017 at 7:30 pm.

Without Depreciation vs With Depreciation Services

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

According to her Duo Tax depreciation schedule, Skye could claim $11,400 depreciation in her first year.

A ten-year-old house purchased for $490,000

Skye’s numbers without a depreciation claim

Annual Income

($490 x 52 weeks)

$25,480

Annual Expenses

$27,334

Pre-tax: Net Income

Income minus expenses: $25,480 - $27,334)

-$1,854

Total Taxation Loss

-$1,854

Tax Refund

(tax loss x 37% tax rate)

$686

Annual Costs of the Investment Property

[net income + tax refund: (-$1,854) + $686]

-$1,168

Weekly loss

-$22

Skye’s numbers with a depreciation claim of $11,400

Annual Income

($490 x 52 weeks)

$25,480

Annual Expenses

$27,334

Pre-tax: Net Income

Income minus expenses: $25,480 - $27,334)

-$1,854

Total Taxation Loss

[net income + depreciation: (-$1,854) + ($11,400)]

-$13,254

Tax Refund

(tax loss x 37% tax rate)

$4,904

Annual Income from the Investment Property

[net income - tax payable: -$1,854 - $4,904]

$3,050

Weekly income

$59

Difference of $81 per week/ $4,218 per year

Without depreciation, Skye had to pay $22 out of her own pocket each week. However, by taking advantage of the Australian Tax Office’s tax breaks and making a depreciation claim, Skye was able to start generating $59 of income per week, so she was no longer paying out-of-pocket.

This means that Duo Tax was able to save Skye a total of $4,218 in her first year of owning the investment property.

The great thing about her depreciation schedule is that it’s valid for up to 40 years! So, Skye 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 Skye’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!