How to Calculate Property Depreciation?

Capital allowance and depreciation are one of the largest tax deductions available to the investors in property. Each year thousands of investors in property pay more tax than they have to because they don’t claim a tax deduction for the investment property depreciation.

Depreciation is an accounting term which refers to the wearing and ageing out of an asset over time. It is typically one of the largest tax deductions claimable by property investors. Not all tax depreciation schedules are the same, but capital claims property tax depreciation schedules have all of the inclusions that help you to maximise your deductions.

Calculate property depreciation

Depreciation will allow you to spread the tax benefit of qualifying expenses over the lifetime of whatsoever improvement you made. When the taxes are filed, rent and costs get entered in a scheduled e-form. Many expenses are of the kind that is for a single year. Single year expenses record the full value at one time. One of the examples can be power washing of the property.

On the other hand, redoing your bathroom or any other room by putting new floors will count as an expense that can be depreciated. That means if your modern room/bathroom costs $30,000, and it has an expected lifetime of 10 years, then you can take $3,000 per year as an expense. Calculation of depreciation is not some rocket science by means of its sound, but it’s just simple maths. You just have to take the value of the item and divide its value by the number of years expected lifespan. Then you will have a number, or which is an amount you can write as taxes as an expense each year.

Calculate depreciation on Rental property

When we talk about the rental property, the most significant asset is the condo, house or townhome property. There’s a formula to calculate the depreciation on rental property too. First, determine the value of the property. Then, you have to separate the value of building from the value of the land. You can depreciate the home since theoretically, it has a value that gets used up over time, but you can’t take depreciation on the value of the land.

You can determine the rental value in several different ways. You can use an appraisal, a tax assessor’s report, and an insurance agent’s estimate to set the value of your rental property. Those numbers, all of them are considered viable when determining your property’s value for depreciation purposes.

Working of Depreciation

There are some rules around depreciation that you have to follow. Therefore, it is crucial to know what they are:

  • If you own the property and then a mortgage is acceptable, but your name must be on the property papers.
  • Only business property can be depreciated, and if you have your personal property, then you can’t decline it. 
  • Furniture cannot be depreciated.
  • It has to have a determinable life span.
  • The depreciated item must have an expected lifespan of more than one year.

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