Case Study

A 10-Year-Old Townhouse Purchased for $700,000

After purchasing her townhouse for $700,000, homeowner Lily ordered a Duo Tax depreciation schedule and claimed depreciation on her investment property. As a result, Lily transitioned from being in a significant negative cash flow position to a far more manageable one.

In other words, while she still had to pay some out-of-pocket expenses, the amount was significantly reduced – she saved $2,479 in her first year of claiming property tax depreciation!

Here's how.

The Numbers: Lily’s Investment Property

Here are some figures regarding Lily’s investment property:

Purchase Type

She purchased the property in 2021 for $700,000 and rented it out immediately.

Rent

Her yearly rental amounted to $27,560 per year, which is a weekly rental of $530.

Expenses

The property’s expenses amounted to $37,500, covering her interest repayments, management fees, rates and maintenance.

While Lily couldn’t 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 Lily’s cash position with and without depreciation in her first year of owning the property.

According to her Duo Tax depreciation schedule, Lily could claim $6,700 depreciation in her first year of using the property as an investment.

A 10-year-old house purchased for $700,000

Lily’s numbers without a depreciation claim

Annual Income

($530 x 52 weeks)

$27,560

Annual Expenses

$37,500

Pre-tax: Net Income

Income minus expenses: $27,560 - $37,500)

-$9,940

Total Taxation Loss

-$9,940

Tax Refund

(tax loss x 37% tax rate)

$3,678

Annual Costs of the Investment Property

[net income + tax refund: (-$9,940) + $3,678]

-$6,262

Weekly loss

-$120

Lily’s numbers with a depreciation claim of $6,700

Annual Income

($530 x 52 weeks)

$27,560

Annual Expenses

$37,500

Pre-tax: Net Income

Income minus expenses: $27,560 - $37,500)

-$9,940

Total Taxation Loss

[net income + depreciation: (-$9,940) + ($6,700)]

-$16,640

Tax Refund

(tax loss x 37% tax rate)

$6,157

Annual Costs of the Investment Property

Total taxation loss [net income + depreciation: (-$9,940) + ($6,157)]

-$3,783

Weekly loss

-$73

Difference of $48 per week/ $2,479 per year

Without depreciation, Lily had to pay $120 out of her own pocket each week. However, by taking advantage of the Australian Tax Office’s tax breaks and making a depreciation claim, she reduced her out-of-pocket expense to just $73 per week.

Duo Tax saved Lily a total of $2,479 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. Lily 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 Lily’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!