Case Study

A House Built Before 1987 Purchased for $350,500

By ordering a depreciation schedule and claiming depreciation on his house that was built before 1987, Derek went from being in a significant negative cash flow position to actually generating income from his investment.
Houses that we 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, Derek still ended up saving $2,072 on his first depreciation claim.
Here's how.

The Numbers: Derek’s Investment Property

Here are some figures regarding Derek’s investment property:
Purchase Type
He purchased a house originally built in 1980 for $350,500 in 2015 and rented it out immediately
Rent
His yearly rental amounted to $18,200 per year – which is a weekly rental of $350
Expenses
The property’s expenses amounted to $20,549, covering her interest repayments, management fees, rates and maintenance.

The previous owner undertook minor renovations on the property before Derek purchased it. As a result, he is able to claim depreciation on the renovations of the property. However, he can’t claim depreciation on any of the existing plant and equipment (Division 40) assets and can only claim capital works (Division 43) deductions on the renovations. 

 

Without Depreciation vs With Depreciation Services

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

According to his Duo Tax depreciation schedule, Derek could claim $5,600 depreciation in his first year. 

 

A house built in 1987 purchased for $350,500

Derek’s numbers without a depreciation claim

Annual Income
($350 x 52 weeks)
$18,200
Annual Expenses
$20,549
Pre-tax: Net Income
Income minus expenses: $18,200 - $20,549)
-$2,349
Total Taxation Loss
-$2,349
Tax Refund
(tax loss x 37% tax rate)
$869
Annual Costs of the Investment Property
[net income + tax refund: (-$2,349) + $869]
-$1,480
Weekly loss
-$28

Derek’s numbers with a depreciation claim of $5,600

Annual Income
($350 x 52 weeks)
$18,200
Annual Expenses
$20,549
Pre-tax: Net Income
Income minus expenses: $18,200 - $20,549)
-$2,349
Total Taxation Loss
[net income + depreciation: (-$2,349) + ($5,600)]
$2,349
Tax Refund
(tax loss x 37% tax rate)
2,941
Annual Income from the Investment Property
[net income - tax payable: -$2,349 - 2,941]
$592
Weekly income
$11
Difference of $40 per week/ $2,072 per year

Without depreciation, Derek would have to pay $40 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 started generating $11 each week – which is $40 more than before his depreciation claim.

This means that Duo Tax was able to save Derek a total of $2,072 in his first year of owning the investment property. 

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

Organise Your Depreciation Schedule Today!

Step 1

Qualify your Property

Call us and we will ask you a few simple questions to qualify your investment property.
Call 1300 185 498
Step 2

Order a Tax Depreciation Schedule

Order over the phone or via our online form and we will begin preparing your depreciation schedule.Call us and we will ask you a few simple questions to qualify your investment property.
Order Here
Step 3

Claim Maximum Deductions

Within approx. 5-10 business days your personalised report will be delivered to you and your accountant.
View Sample Report

Get in Touch.

Subscribe & receive $100 off!
Bought an investment property? Enjoy $100 off on your next tax depreciation schedule purchase and receive FREE weekly investing tips.
Name
Hidden
chevron-down linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram