House vs Unit. Comparing depreciation deductions

When property investors are selecting an investment property, they are often faced with one crucial decision; whether to invest in a house or a unit. While considering their options, investors frequently approach BMT to ask how the depreciation deductions differ between each of these different types of property investments.

The answer depends on a variety of factors. The purchase price, construction commencement date, settlement date, land value (where relevant) and the value of all fixtures and fittings within the property are all important determinants of the final depreciation claim. However, generally a depreciation claim for a unit will contain greater deductions than a claim for a house.

Units often contain more fixtures and fittings than a house. This allows the owner to claim against a greater number of depreciable items in the unit (e.g. carpets, light fittings and dishwashers). Additionally, owners of units may be able to claim depreciation deductions for common property; assets shared by all property owners in the development. Examples of common property assets include pools, driveways, stairways and elevators. The deductions claimable for such assets are determined by the owner’s ownership share, which is allocated by an Accountant. As common property cannot be claimed for in all states, property investors should also confirm with their Accountant whether common property deductions are available.

The example below demonstrates the difference in depreciation claimable between a house and a unit. After five years of ownership, depreciation deductions for the unit totalled $17,500 more than was claimable for the house. Both properties have the same purchase price, construction date and settlement date.

Note: When purchasing a strata unit there are other costs, such as strata fees, to consider as an ongoing cost of ownership.

How should this affect your purchasing decisions?

Depreciation deductions can have a significant effect on a property investor’s cash flow. The $17,500 in additional deductions available to a property investor who chose to purchase the unit in the example scenario would receive an additional $25 per week in additional cash flow (assuming a 37 per cent marginal tax rate).

While the additional cash flow offered by depreciation should always be a significant factor affecting a purchase, multiple factors should be considered when making an investment decision. A property investor’s personal circumstances and investment strategy should always be taken into account.
Regardless of the property type, property investors should always contact a qualified Quantity Surveyor specialising in tax depreciation, such as BMT Tax Depreciation, to assess the depreciation deductions available for an investment property. A BMT Tax Depreciation Schedule maximises the deductions that can be claimed for depreciation over the life of a property. By claiming their full depreciation deductions, property investors can greatly improve the cash flow of any investment property, regardless of whether it is a house or unit.

BMT Tax Depreciation


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