Case Study

An Apartment Built Before 1987 Purchased for $582,000

By ordering a Duo Tax depreciation schedule and claiming depreciation on his apartment that was built before 1987, Sean went from being in a significant negative cash flow position to being in a far more manageable cash flow position.

Apartments that were built before 1987 have several depreciation limitations, including the fact that they’re not eligible for capital works deductions unless the owner undertook renovations. Despite these limitations, however, Sean still ended up saving $2,183 in his first year of claiming depreciation.

Here's how.

The Numbers: Sean’s Investment Property

Here are some figures regarding Sean’s investment property:

Purchase Type

he purchased an apartment originally built in 1980 for $582,000 in 2015 and rented it out immediately,

Rent

his yearly rental amounted to $20,800 per year - which is a weekly rental of $400,

Expenses

he property’s expenses amounted to $31,810, covering his interest repayments, management fees, rates and maintenance.

The previous owner had completed minor renovations on the property before he sold it. As a result, he is only able to claim depreciation on the renovations of the property. This means he can claim depreciation on plant and equipment (Division 40) assets that he installed (not on any assets installed by the previous owner) and can only claim capital works (Division 43) deductions on the minor renovations.

Without Depreciation vs With Depreciation Services

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

According to his Duo Tax depreciation schedule, Sean could claim $5,900 depreciation in his first year of renting the property out.

An apartment built in 1980 purchased for $582,000

Sean’s numbers without a depreciation claim

Annual Income

($400 x 52 weeks)

$20,800

Annual Expenses

$31,810

Pre-tax: Net Income

Income minus expenses: $20,800 - $31,810)

-$11,010

Total Taxation Loss

-$11,010

Tax Refund

(tax loss x 37% tax rate)

$4,074

Annual Costs of the Investment Property

[net income + tax refund: (-$11,010) + $4,074]

-$6,936

Weekly loss

-$133

Sean’s numbers with a depreciation claim of $5,900

Annual Income

($400 x 52 weeks)

$20,800

Annual Expenses

$31,810

Pre-tax: Net Income

Income minus expenses: $20,800 - $31,810)

-$11,010

Total Taxation Loss

[net income + depreciation: (-$11,010) + ($5,900)]

-$16,910

Tax Refund

(tax loss x 37% tax rate)

$6,257

Annual Costs of the Investment Property

Total taxation loss [net income + depreciation: (-$11,010) + ($6,257)]

-$4,753

Weekly loss

-$91

Difference of $42 per week/ $2,183 per year

Without depreciation, Sean would have to pay $133 out of his own pocket each week. However, by taking advantage of the Australian Tax Office’s tax breaks and making a depreciation claim, he reduced that payment to $91 per week.

This means that Duo Tax was able to save Sean a total of $2,183 in his first year claiming depreciation deductions.

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

Here’s How Much You Could Be Claiming

As you can see from Sean’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!