Property investors who have second-hand rental properties could be missing out on significant depreciation tax deductions.

An analysis by BMT Tax Depreciation found that around two thirds of the second-hand properties had undergone some form of addition or renovation over the past three years.

BMT Tax Depreciation CEO Bradley Beer said many property investors are unaware they can claim depreciation on older second-hand properties.

“In November 2017, the government changed the way investors claim depreciation for plant and equipment assets — specifically, depreciation on previously used plant and equipment assets can no longer be claimed,” Mr Beer said.

“This has resulted in many investors misunderstanding the changes and not claiming depreciation at all – missing out on what could be thousands of dollars back at tax time.”

However, it is important to note that the under the legislation, capital works deductions available on the structure of a residential property built after 1987 remained unaffected.

Mr Beer said these properties make up 85% to 90% of depreciation claims. This means that owners who renovate older investment properties can claim qualifying capital works deductions and depreciation on newly installed plant and equipment assets

“Say a property was built in 1980 and the new owner purchased it as an investment in 2021, then neither capital works nor plant and equipment depreciation deductions are available on the original structure,” he said.

“However, if it underwent any form of structural renovation since 1987, even by previous owners, then capital works deductions could be available – on top of any deductions related to newly added plant and equipment.

Mr Beer said it is crucial for investors to make physical site inspections to ensure that every addition or renovation is identified and valued by a specialist.

“Some renovations and additions are difficult to identify and see the extent of the works, so investors of older properties must not rule out depreciation straight away,” he said.

“Instead, contact a specialist who will find deductions on any renovations made and which will increase the annual cash return.”

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Photo by Milivoj Kuhar on Unsplash.