05 Mar Depreciation and property
Brad Beer explains what depreciation is all about and how you can unlock thousands of dollars in your investment. What properties can benefit and when you should be getting one done. Is it ever too late if you have never done one? Brad has the answer.
Read the transcript here:
Kevin: Brad Beer is a director of BMT Tax Depreciation, with over 15 years experience in the property depreciation, building, and construction industry. Because of Brad’s substantial knowledge and specialist experience in property tax depreciation and construction cost consulting, he’s regularly called on to comment on these issues and is, in fact, one of our experts at Real Estate Talk.
Brad, I thought we might just quickly talk about what is property depreciation?
Brad: Property depreciation is a tax deduction that’s available to any property investor. What it means is when you’ve got an investment property, it will help you to pay less tax.
Kevin: How do I as an investor know how much depreciation I can get?
Brad: How much depreciation you’ll get will relate to the type of property you have. As a quantity surveyor, we work out those numbers and tell you exactly how much deductions there might be. Usually, our standard residential property is $5000 to $10,000 per year is pretty average.
Kevin: This needs to be done in a special schedule. How do I go about organizing that?
Brad: Basically, a quantity surveyor who specializes in depreciation will talk to you about your property, see what deductions may be there, inspect your property, look at what is in there, and work at exactly what deduction might be able to be claimed, and give that report to your accountant to help you make those deductions.
Kevin: That’s something that BMT specializes in as tax depreciation experts. Can anyone do this for me?
Brad: The reason you want to get a quantity surveyor involved is because it will have the relationship to the cost of construction, a quantity surveyor is the guy who estimates construction costs, but also a specialist in depreciation will make sure that you get everything you can out of the property.
Kevin: That’s the role of a quantity surveyor?
Brad: That’s one of the roles of the quantity surveyor. That’s the one we play at BMT. Traditionally, a quantity surveyor estimates construction cost of buildings, so we get all the plans, specifications, things on buildings to say how much concrete, how much steel, how much should it cost. Part of that comes across to the depreciation because it relates to the cost of construction of a building.
Kevin: Now, can this be done in the event of a new building? Can it be done before the building is constructed, or does it need to be done afterwards?
Brad: You can’t start making the clients until you actually have the property as an investment property making income for you. Normally, when you do that is when it’s actually completed and you settle on it. You might want to get some estimate of what reductions might be there before you actually take a hold of the property or when you’re making a decision to buy the property, but you actually effectively make the deductions once you take a hold of the property and use it as an investment property.
Kevin: As a property investor, if I’m holding a number of properties or even one for that matter – it doesn’t matter – and I’ve never had the depreciation schedule done, is it ever too late?
Brad: It’s not too late. You can easily go back and amend at least a couple of years of your tax returns if you’ve been missing out on some of the deductions. If it’s really old and you’ve owned it for a really long time – ten plus years – it may be hard to make it viable to get enough deductions out of it to make it worth it. But we’ll have a look at that and ask you some questions about your property or your properties prior to you going ahead and doing anything.
Kevin: So it’s worthwhile having an assessment done at that level. What would be the indicative cost of something like that?
Brad: That part is free. We’ll talk to you about your property, we’ll talk to you about what deductions might be there based on what you’re already doing, based on what sort of property it is, and we’ll just go ahead and work it out at how much it can be if we think it’s worth it.
Kevin: Finally, before we leave you at this point, Brad, can you just tell me what the process is involved in preparing a depreciation schedule?
Brad: Yes, definitely. Kevin, the process is basically, we’ll talk to you about your property to make sure it’s worth it to start with. Once we do that, we go out, we do an inspection of your property, contact your property manager, talk to your tenant, go through, measure up, estimate how much is this building cost, what items do we need that we can claim as the deduction?
We’ll bring it back, we’ll put it in to the program that works the numbers out and spits out basically a report that tells you exactly how much to claim every year in this depreciation to talk to your accountant, so he can plug that number into tax return and get you some more cash.
Kevin: Look, there are so many points that I want to cover with you, I’d love you to come back at another time, Brad, if you could. I want to talk about how long does one of these depreciation schedules actually run for, how often should it be updated, and how does it differ from a valuation?
My guest is Brad Beer from BMT Tax Depreciation. They are the quantity surveyors who specialize in tax depreciation. The website is BMTQS.com.au.
Brad, thanks again for your time.
Brad: Thank you, Kevin.