Can scrapping old items in your investment property help your taxation bottom line
Suppose you need to spend some money on making improvements to spruce up your investment property, such as a new air conditioner or dishwasher. In that case, these expenses can’t be claimed as immediate deductions.
These costs are deemed to be capital improvements by the tax office, and if they cost more than$300 must be depreciated over time. Consequently, only a portion of the expense can be claimed in the year of the purchase, and the balance is claimable proportionally each year for the effective life of the new asset.
However, you might be able to claim some immediate deductions on any ageing items that you ditch as part of the investment property facelift, and this is where scrapping comes into play.
Scrapping refers to the removal and disposal of any potentially depreciable asset from an investment property. Perhaps it’s a frayed carpet or a tired lighting fixture that needs to be replaced or ‘scrapped’. In this instance, a property investor may be entitled to claim a tax deduction against the remaining depreciable value of these jaded items. Items that could be scrapped include air conditioning units, heating and hot water units, carpet and vinyl floor coverings, stoves, lighting fixtures, dishwashers, and security systems.
According to one industry report, the key to applying this nifty strategy is to ensure your quantity surveying or depreciation specialist can value those items. This can be achieved with a pre-renovation inspection or photos and written notes about the well-worn objects before their removal.
Alternatively, you could invest in a “scrapping schedule” to help calculate the residual of the outgoing assets. This report can be used in tandem with a deprecation schedule that captures the values of the new items you’ve purchased as part of your investment property’s makeover.
One report insisted that it is common for landlords to claim up to $5,000 and significantly more for their scrapped carpets, air conditioners, etc. Add the depreciation claims against the new assets, and scrapping can play an excellent role in reducing your tax this financial year. Talk to your accountant or a depreciation specialist to find out more about scrapping items within your investment property.
If you have any questions, or need clarification on any of the above, please contact Anna Marten, our Head of Property Management, on 9651 1666 or anna@guardianrealty.com.au.
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