The costly mistake most property investors make

Data shows that Australian property investors often make one large and costly mistake, according to Australia’s leading supplier of tax depreciation schedules.

BMT Tax Depreciation recently analysed its investor database and was surprised to find that a great deal of property investors overlook depreciation, a particularly lucrative tax deduction.

“In the last three years, more than 25,000 people who have come to BMT for a tax depreciation schedule have been missing out on claiming any depreciation in previous financial years,” said BMT chief Bradley Beer.

Read more: Five mistakes to avoid when investing in property

Depreciation is the natural wear and tear of property and assets over time. It is the second-largest tax deduction available for investment property owners after loan interest, yet Mr Beer says the company has seen tens of thousands of investors neglecting to claim depreciation to its full potential.

“Property depreciation isn’t the same as other tax deductions. Investors don’t need to spend any cash to claim it, which is why it’s easily missed. And people don’t realise it can be claimed for up to 40 years,” explains Mr Beer.

“If an investor buys a new four-bedroom house for $750,000, they could expect a first-year deduction of over $16,000, while the cumulative five-year deductions would be around $67,500.”

Read more: Can you use losses on rental properties to offset other income?

Mr Beer continued to explain that it’s not just the large, expensive investment properties that result in thousands in depreciation deductions.

“A second-hand, two-bedroom unit purchased for $550,000 can still result in a first-year depreciation deduction of over $6500 and cumulative five-year deductions of over $27,000.”

Mr Beer said that investors who have not been claiming depreciation could still claw back some missed dollars.

Read more: Seven deadly tax sins that could sink your hopes of a return

“It’s quite straightforward to amend two previous years’ tax returns with our schedules, but anything beyond this can get complex and come under tax commissioner scrutiny. So, it’s best to get on top of it early,” said Mr Beer.

“Claiming depreciation can be the difference between a negative and positive cash flow. We see it help investors build equity and grow their portfolios throughout their investing journey.”

Do you have an investment property? Do you claim depreciation?

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