Changes to how depreciation can be claimed on residential properties, following the release of the 2017 federal budget, could prove very costly for property investors who purchase established property.
Under the new rules [yet to be legislated by Parliament] investors will only be able to depreciate new plant & equipment assets within a brand-new property or any new items they purchase for their investment property. Subsequent owners however, who acquire a property after May 9th, will not be able to claim depreciation on existing plant & equipment assets.
What this means is if you choose to purchase an established investment property you will no longer be able to claim depreciation on any of the existing plant & equipment assets contained in the property.
That’s a real loss of thousands of dollars in depreciation deductions.
Which is a really big deal – particularly as many investors rely on these sizeable depreciation deductions in the early years of property ownership to boost their cash flow until rents and values begin to rise.
To put this in to perspective, a 3 bedroom property can typically have a total deprecation allowance of around $30,000 for all its plant & equipment. That’s a very significant deduction you will now miss out on as a result of investing in established property.
The only way you can get the depreciation allowance now is to purchase brand-new property – either off-the-plan or by investing in a new house & land package.
If you already own investment properties don’t panic – the budget notes were clear that existing investments will be grandfathered. This means that anyone who has purchased a property up until the 9th of May 2017 will be able to claim depreciation as per normal.
Investors will also still be able to claim capital works deductions, known as building write off, including any additional capital works carried out by a previous owner.
How this will play out is yet to be determined but you might see investors holding onto their existing property investments for longer, because they know there will be no depreciation on their next property – unless of course it’s a new property…
Which leads us to the next possible outcome – we might see more investors looking to buy and invest in brand-new property over established property, with the increased demand likely to further underpin price growth in this sector, particularly in areas like south-east Queensland.
For more info or assistance with finding and investing in new property please call Sam on 0411 431 391
Sam, Matt & Andy
Adelaide Finance Brokers + a lot more…
PS. We recently wrote an article highlighting a number of reasons why investors might consider buying new property over established property – to read it click here
PPS. We’ve created a property investment coaching program to help guide you through the process of building a profitable property portfolio – for more info click here