Tax Depreciation: An Investor Profile

April 27th, 2008 · No Comments

The depreciation benefit to every investor will vary. The following example has been provided as an approximate guide, using the diminishing value of depreciation.
Property:
A two bedroom unit purchased for $400,000
Income:
Rented for $385 per week
Total income of approximately $20,000 per year
Expenses:
Interest, rates and management expenses $32,000 per year

Scenario 1 – No depreciation claim:
Pre tax cash flow
Taxation loss $12,000 = $230 per week
Post tax cash flow (top tax rate of 45%)
Tax refund $5,400
Net cash outlay $6,600 = $126 per week

Scenario 2 – With depreciation claim:
Pre tax cash flow
Tax depreciation $12,000
Cash flow position -$12,000
Total deduction $24,000
Post tax cash flow (top tax rate of 45%)
Tax refund $10,800
Net cash outlay $1,200 = $23 per week

This investor has over $100 extra a week by obtaining a depreciation report.
This demonstrates the after tax effect of applying property depreciation. The property investor in this situation has a bottom line benefit of $5,400 per annum. The benefit isthe difference between the $6,600 cost before depreciation is applied, and the$1,200 cost once depreciation is applied.
This profile emphasises the benefit of depreciation. The property investor has made this saving from the same property that has moments ago cost $6,600 for the sameperiod.
Article Provided by BMT & ASSOC Pty Ltd.

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