Case Study

A Townhouse Built Before 1987 Purchased for $328,000

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

Townhouses 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, Nathan still ended up saving $666 in his first 18 months of owning the property.

Here's how.

The Numbers: Nathan’s Investment Property

Here are some figures regarding Nathan’s investment property:

Purchase Type

he purchased a townhouse originally built in 1980 for $328,000 one year ago and rented it out six months after purchasing the property,

Rent

his yearly rental amounted to $17,160 per year - which is a weekly rental of $330,

Expenses

the property’s expenses amounted to $19,455, covering his interest repayments, management fees, rates and maintenance.

The previous owner had extended the original structure to add another bedroom, renovated the kitchen and bathrooms and repainted the property before Nathan purchased it. As a result, he is only able to claim depreciation on the renovations of the property. This means he can’t claim depreciation on any 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 Nathan’s cash position with and without depreciation in his first year of owning the property.

According to his Duo Tax depreciation schedule, Nathan could claim $1,800 depreciation in his first year of renting the property out.

A townhouse built in 1980 purchased for $328,000

Nathan’s numbers without a depreciation claim

Annual Income

($330 x 52 weeks)

$17,160

Annual Expenses

$19,455

Pre-tax: Net Income

Income minus expenses: $17,160 - $19,455)

-$2,295

Total Taxation Loss

-$2,295

Tax Refund

(tax loss x 37% tax rate)

$849

Annual Costs of the Investment Property

[net income + tax refund: (-$2,295) + $849]

-$1,446

Weekly loss

-$28

Nathan’s numbers with a depreciation claim of $1,800

Annual Income

($330 x 52 weeks)

$17,160

Annual Expenses

$19,455

Pre-tax: Net Income

Income minus expenses: $17,160 - $19,455)

-$2,295

Total Taxation Loss

[net income + depreciation: (-$2,295) + ($1,800)]

-$4,095

Tax Refund

(tax loss x 37% tax rate)

$1,515

Annual Costs of the Investment Property

Total taxation loss [net income + depreciation: (-$2,295) + ($1,515)]

-$780

Weekly loss

$15

Difference of $13 per week/ $666 per year

Without depreciation, Nathan would have to pay $28 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 $15 per week.

This means that Duo Tax was able to save Nathan a total of $666 in his first 18 months of owning the investment property.

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