houses – The Interiors Addict

Depreciation differences: old versus new residential properties

Property depreciation is a non-cash tax deduction available to the owners of income producing properties. As a building gets older, items wear out – they depreciate. The Australian Taxation Office (ATO) allows property owners to claim this depreciation as a tax deduction. Depreciation on mechanical and removable plant and equipment items such as carpets, stoves, blinds, hot water systems, light shades and heaters are all valid deductions. There are also deductions available for the wear and tear of the structural elements of a building, commonly called a capital works deduction.

Investors often wonder about the depreciation potential of older properties compared to new properties. The simple answer is that the owners of newer properties will receive higher depreciation deductions. However, all investment properties both new and old can attract depreciation deductions for their owners.

Newer properties have newer fixtures and fittings, so the starting value of those items is higher, resulting in higher depreciation deductions. The same applies to the capital works deduction. 2.5% of the structural costs of a building can be claimed per year for forty years. Construction costs generally increase over time, making building write-off deductions on new buildings higher.

Owners of older properties can claim the residual value of the building up to forty years from construction. For example, if an investment property is five years old, the owner will have 35 years left of capital works deductions to claim.

Capital works deductions are governed by the date that construction began. If a residential building commenced construction before the 15^th of September 1987, there is no building write-off available. Investors who own properties that are built before this date will still be able to make a claim on the fixtures and fittings within the property and include any recent renovations, even if the renovation was carried out by a previous owner.

It is always worth getting advice about the depreciation potential of a property regardless of age. The deductions are not as high on older properties but there are usually enough deductions to make the process worthwhile.

The table below shows the difference a depreciation claim can make for the owners of new, old and recently constructed residential houses.

2015_T004 Old older new houses — The depreciation deductions in this case study have been calculated using the diminishing value method.

As you can see, although the owner of a newer residential house constructed after 2012 will receive much higher deductions, the owner of an older house constructed in 1980 will still receive substantial deductions. In the first financial year alone they can claim $3,298 in deductions and over five years deductions total to $12,357.

To obtain a free estimate of the deductions available in any investment property or for obligation free advice, investors can contact one of the expert staff at BMT Tax Depreciation on 1300 728 726.

– Bradley Beer is the managing director of BMT Tax Depreciation. A depreciation expert with over 16 years experience in property depreciation and the construction industry.

How to stay cool at an auction: by The Block buyer’s advocate Nicole Jacobs

The Block Triple Threat buyer’s advocate Nicole Jacobs, shares her five top tips to buying at auction…

Even as a seasoned professional, an auction brings butterflies to my stomach, and I love that feeling. It keeps me alert and ready for the auction. Harnessing this energy positively is one of your keys to a successful outcome.

1. Pre-auction homework

Before the auction, you will need to have had the Contract of Sale looked at by a solicitor or conveyancer to make sure all questions have been answered. You will have your finance sorted (know your limit) and you will have done your homework on the area (recent sales of similar properties) and attended several auctions so you know the process.

2. Is it a referral or non-referral auction?

Know the difference, know the signs and ask the question. This is something you need to know.

A non-referral auction means the auctioneer will not break for a ‘quick chat with my vendors’. Once he/she has reached the vendor’s reserve price they will keep going until the last bid is offered, count it down three times and sell it under the hammer. If you were waiting for the half-time during this auction, you could be leaving without even putting your hand up.

A referral auction can play out two ways. The auctioneer will break when the bidding slows to a halt and ‘refer to their vendor/s’, come back and either declare the property ‘on the market’ or say ‘we are very close’ or something to that effect. They will continue and hope that the reserve price is met and keep going while the bidding keeps coming. Often, one of the agents assisting will go inside and come back out and give a nod of ‘it’s on the market’ to the auctioneer and they will knock it down three times when the bidding has stopped.

If throughout either of these processes you are confused, don’t be afraid to ask the question ‘Is the property on the market?’. If nothing else, it will slow proceedings and allow you to think if the pace has been faster than you can calculate!

3. Stand in a prominent position where you can see the whole crowd and the auctioneer

Positioning yourself well at an auction is crucial. You need to see where the bids are coming from so you can watch their body language and you also need to be in clear view of the auctioneer.

Body language is an amazing human trait, especially at an auction. A couple that start to shake their heads or discuss whether they can go up another $1,000 has clearly not come to the auction with a firm limit and an auction strategy.

4. Bid and bid with confidence

An auction where no one bids is crazy. If the property passes in on a vendor bid, then a ‘behind the doors’ auction goes on and then you have no idea if there is actually another bidder at all.

If it is going to pass in, then let it pass in to you. You will then have the right to hear the vendor’s reserve price that you will either be happy to pay, or be able to negotiate for a good 15 minutes while everyone else is outside wishing they were you.

Every auction is different. Whether you come in at the start, halfway through or at the end, you need to bid with confidence. If you know your prices, then a strong first bid can often knock out half the competition right there and then. While many auctions have been won on a bid of just $1,000, it is often not the strongest tactic to employ, going up in $1,000 lots.

5. Don’t end on a round number

Try not to have a finish limit that is a round number. Sometimes this is because the bank or finance broker has said ‘you can go to $1,200,000’. If you have a limit of, for example $1,205,000, you may just be able to put in your additional $5,000 strong bid at the end and win the auction.

–Nicole Jacobs is a member of the buyers’ jury on The Block Triple Threat and director of Jacobs Buyers Advocates in Brighton, Melbourne. She has worked in real estate for more than 15 years.