Ask Margaret: do I need a depreciation schedule for the home I live in?

Dear Margaret,

We are aware of the benefits of having a depreciation schedule compiled for investment properties.

Can you tell me if there is any benefit in having a depreciation schedule compiled for one's principal place of residence?

Many thanks,

Maria

While I frequently talk about depreciation, I guess we haven’t really painted the picture of how it looks as a bottom line.

Basically, all of the fixtures, fittings and furniture in any income producing property are eligible for you to make a claim for the depreciating value. This is done in consideration for the fact that one day you may have to replace them, and getting the tax breaks can help you to save up for that eventuality.  In a nutshell:

• Each item has a different rate depending upon its effective life.
• Each year you work out how much value has been ‘lost’ and deduct from the income. 
• No money is lost, only value. That’s why we call it ‘on paper’.
• The same applies to the building but over 40 years

Each movable item has a different rate that you can claim depending upon how long the tax office thinks it will last – usually between 2 and 10 years. This means that each year you work out how much value has been ‘lost’ and take that amount off the income. 

You haven’t lost actual money here, only value, but you do get actual money back as you now pay less tax on the income.  That’s why we call it ‘on paper’. You can do the same with the building, but it takes longer for that to run out, being 40 years

The extra tax you get back helps a lot with your cash flow – in essence the rent, plus your extra tax, make up your cash inflows, while your expenses make up the outflows. Claiming depreciation can mean that you reduce the gap between what comes in and what goes out and helps you to stay in the market longer!

As for your own home, as it does not produce an income there’s no point in having a schedule done as you cannot make any claims there. If you move out and make it a rental, you can have one done at that time.

Margaret Lomas is a best-selling author and writes and hosts the popularProperty Success With Margaret Lomas and heads up the panel onYour Money, Your Call, both on Sky News. She is the founder of Destiny.

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