What is a depreciation schedule?
A depreciation schedule for real estate is a table or calculation used to determine the amount of a property’s value that is lost each year due to factors such as age, wear and tear, and obsolescence. This loss in value can be used to claim tax deductions for the property owner. The schedule takes into account the cost of the property and its expected useful life to estimate the yearly amount of depreciation. The schedule is a key tool for real estate investors and property owners to plan for their tax liability and understand the financial performance of their investments.
A depreciation schedule lasts for the life of the property (40 years). You are only required to pay one initial tax-deductible fee for the schedule, from there is it yours to provide to your tax agent throughout each financial year of owning the property.
What is listed in a depreciation schedule?
A depreciation schedule typically includes the following information:
Property description: This includes the address of the property, the date it was acquired, and its cost basis, including any improvements or renovations.
Depreciation method: The method used to calculate depreciation, such as the straight-line method, is listed in the schedule.
Useful life: The estimated useful life of the property, in years, is specified in the schedule.
Yearly depreciation amount: The amount of depreciation claimed each year for tax purposes is listed in the schedule.
Accumulated depreciation: The cumulative amount of depreciation claimed over the years is listed in the schedule.
Remaining value: The estimated remaining value of the property at the end of its useful life is listed in the schedule.
Supporting documentation: The schedule should be accompanied by documentation such as receipts, invoices, and property appraisals to support the cost basis and other information included in the schedule.
The depreciation schedule provides a comprehensive overview of the depreciation claim and the financial performance of a property over its useful life, and is an important tool for real estate investors and property owners to understand their tax liability and the value of their investments.
Considerations when purchasing a depreciation schedule
Age of the property
Due to the depreciation schedule lasting for 40 years, it may not be viable if your property is old. The depreciation of a brand-new property will be significantly more than compared to a 30-year-old property. It is best to contact a qualified quantity surveyor and ask for their professional opinion. All you will need to do is provide your address to a qualified surveyor and they will provide you with their opinion.
Purchase a new schedule after renovations or home improvements
It is recommended to create a new depreciation schedule after renovations or improvements to a property. Renovations or improvements can increase the cost basis of the property and affect the calculation of depreciation, so a new schedule should be prepared to reflect the updated information.
It is important to keep accurate records of renovations or improvements and to consult with a tax professional to ensure that the updated schedule is compliant with tax laws and regulations.
Depreciation schedule example
Below you will find a real depreciation schedule for a residental property in South Australia.