Property Depreciation: Are You Undervaluing Your Depreciation?
Buildings and assets within a property have a finite usable life, and they depreciate or lose their value over time. The tax authority allows property owners to claim this amount of depreciation as a deduction against their taxable income. Property depreciation can offer significant savings; however, many owners do not claim the full amount of depreciation that they are entitled to. How do you know whether you are claiming all the deductions allowable against your taxable income? Read on to find out some of the forms of depreciation that are commonly undervalued or overlooked and how to make accurate deductions.
Depreciation of old property
One may assume that just because a building is old, it does not qualify for depreciation. However, this is not always the case. Most old buildings qualify for depreciation on capital works, that is, the building's structure together with any renovations that may be undertaken. The deductions on repairs, upgrades, and additions to an old property are claimed over one year rather than over the usable life of the property as is the case with asset depreciation. A quantity surveyor can help in determining the deductible capital works and value of renovations made to the property.
Property assets during purchase
Many people tend to replace some existing assets such as furniture, appliances, and other fixtures with new ones after buying a property. Did you know that you can claim deductions on these assets even if you intend to replace them in the future? As long as the assets are still usable, it is possible to claim wear and tear during the year that the property is purchased. Your tax consultant can assess the assets and help you determine the amount that you can claim at the end of the year for wear and tear.
Renovations after purchase
Any improvements and additions made to property after purchase qualify as deductions and are allowable against the taxable income. This also includes any new assets such as appliances, furniture, mats, and plumbing fixtures, air conditioning units, and insulation systems. After undertaking any renovations, ensure that a quantity surveyor or an engineer quantifies their value for tax purposes. This will also ensure that you do not undervalue or overvalue the renovations as this can attract a penalty from the tax authorities.
These are some of the common areas that property owners overlook when claiming tax deductions. Hire a tax consultant who can help you prepare a tax depreciation schedule and accurately calculate and claim all the allowable deductions that you are entitled to.