Greatest Depreciation Impact on buying brand new property versus second hand property.
The recent depreciation changes have the greatest impact on the types of property you may choose to invest in. Some people prefer to invest in brand-new properties, while others opt for older property that they can renovate and resell for profit.
Washington Brown, who are the property depression experts and accredited surveyors in Australia and internationally do assess properties for tax depreciation according to ATO compliance format. Their work is published in magazines,books and national media. In 2017,they published a book detailing some calculations on new and old properties where the middle column was for 2016 because it’s one year prior to the current year. This highlights that the property is second-hand and you will be acquiring previously used assets if you purchase it now.
Each property will have other expenses at 1.5 per cent of the purchase price, which makes $11,250 annually for each property.
Depreciation on a brand-new property
You can see that the total tax loss on the brand-new property is quite high at $22,850 but you will receive a tax cheque back from the ATO to the tune of $8,455 – and that’s cash in hand.
Depreciation on an old property
Next, let’s look at the property built before 1987. Again, you have physically paid out $7,850 over the year to hold the property. You can’t claim any depreciation on your investment, so the total tax loss continues to be $7,850. If you are in the 37 per cent income tax bracket, there will be a tax return of $2,905.
That’s just under $100 per week to own a property built before 1987.
Depreciation on a second-hand property built between 1987 and 2017
Your cash outlay was $7,850, so your annual cash outlay is $3,465. That means your weekly cash flow is negative $66, but you’ll still eventually realise a capital gain over the medium to long term. As you can see, there are pros and cons of buying brand-new and almost-new properties, depending on your investment strategy. If you buy something ‘newish’ – say a five to ten-year-old property – there is a fair chance that it has been bought and resold a few times.
Therefore the value is now reflected in a more realistic way on the open market.
If you own an investment property and haven’t had it professionally assessed for depreciation allowances, chances are you’re paying to much tax!
ACT NOW AND SAVE!!
As a C J Investiment client,request for application form and get your report for $660 GST inclussive!(usually $770)