BUILDING A DUPLEX FOR INVESTMENT
There are some obvious advantages to building a duplex as an investment property. One of the most popular drawcards is the instant equity you can achieve on your land and you get the value of two new homes at a fraction of the price to build two freestanding homes. Plus, with the sale or rental of two properties you can even be either debt free or cash flow positive fairly quickly after completion, and savings can also be made with stamp duty new build policies.
But what we want to talk about today is yet another perk of duplex builds, something not all investors are aware of – tax depreciation.
What is tax depreciation?
According to one of our local specialists in tax depreciation, Capital Claims, “Capital allowance and depreciation are some of the largest tax deductions available to property investors.” So if you’re looking to build a duplex as an investment property, either as first-time developer or even if you’ve been a long-time investor, but don’t know how to capitalise on your investment property with a detailed depreciation schedule, you need to read on.
Tax depreciation can literally mean thousands of extra dollars in your pocket annually.
Basically, tax depreciation is a term that describes substantial deductions that are available at tax time. These deductions are available to investors in both commercial and residential property markets and are calculated on the depreciating value or both the building structure, as well as the plant and equipment components of the property. Plus, tax depreciation new build guidelines are the most beneficial to investors under the current government policies.
How much depreciation in deductions could you be earning?
Plant and equipment deductions are all dependant on the specific items and their annual decrease in value as determined by the Australian Tax Office (ATO). It is calculated by starting with the purchase price, and then depending on the item, there is a period of depreciation that you can claim.
Structural depreciation otherwise known as capital works deductions are determined on the cost to build a duplex, calculated over a 40 year period from when your new duplex was built. NAB recently wrote about Tax Depreciation, for a “new building that cost $200,000 to build, you could claim up to $5,000 each year for 40 years”.
You can work out how much tax you could be claiming using online tools, such as the BMT Tax Depreciations calculator, but it is always recommended that you engage an experienced and specialised Quantity Surveyor. It is the Quantity Surveyor’s job to collate a report outlining the deductions available to investors and developers – and this can be done before the duplex has even been built or is ready to rent. This allows you to have a complete and comprehensive idea of your exact expenditure and ongoing investment returns, up-front.
After the new duplex investment property has been built the Quantity Surveyor can then issue you with a Tax Depreciation Schedule that you simply forward to your accountant to receive the ongoing benefits of tax depreciation on your new duplex build. You can download sample depreciation schedules to gain a clearer indication of exactly what you can claim and the % amounts.
New duplex builds are even better investments with astute tax depreciation claims
As mentioned in the introduction, and outlined in previous articles, new duplex builds are one of the best investment property options available in this current market. The cost to build a duplex, while slightly more than a single freestanding home, is not as much as building two freestanding homes, yet you get to benefit from the increased value of owning two homes with dual income opportunities. There are a wide range of duplex plans and prices available, ensuring you can tailor your build to your budget, block requirements, and what the buyer or rental market is demanding. Plus, Hunter Valley and regional Newcastle block sizes are well-suited for a comfortable duplex build that has all the street appeal of a freestanding home.
Disclaimer – the information in this article is general in nature only and does not constitute professional financial, legal or taxation advice. Please consult a registered financial planner, legal practitioner or tax accountant for specific advice about your individual circumstances.