Claiming tax deductions for depreciation of holiday rentals is often missed by the property owners
Depreciation of holiday rentals is a commonly missed tax deduction for the owners of these properties. We are often surprised by how many investors do not claim for depreciation of their holiday rental, despite the significant tax advantages that may be available.
Owners of holiday rentals are able to claim tax depreciation on their investment for the period of time, each year that the property is available for rent (not including time set aside for personal or free use by you and your family).
If the holiday rental period increases in availability or due to continuous use, this can create additional depreciation deductions for owners.
Holiday accommodations can generate fantastic depreciation deductions for investors as they are typically furnished homes or apartments and are well-maintained.
What deductions for depreciation are holiday rental owners entitled to?
The tax deductions available will vary for owners, depending on when they purchased their property, what period of time the property is available , and whether it was purchased brand new or as an established property.
The deductions available fall under Division 43 (structural/building) and Division 40 (plant and equipment/furniture) inclusions.
Division 43 deductions can be claimed regardless of whether you purchased your property brand new or established, so long as the building and the works that you are claiming for are less than 40 years old.
Division 40 deductions can be claimed for any plant and equipment items (including furniture, linen, crockery and cutlery, curtains, blinds, carpet, light shades etc) that have been purchased as brand new by the owner.
Case Study – depreciation claimed for 3 holiday units, Forster NSW
Our clients Rachel and Steve claimed over $73,000 in tax deductions in the first full financial year for their 3 newly built, beach holiday units, that were purchased fully furnished with brand new furniture.
The beach units are located in Forster, a beautiful beach location on the east coast of NSW.
The holiday units were built in May 2021. Each unit has 3-4 bedrooms, a single bathroom, 2 car parks, a deck, BBQ facilities and came fully furnished with brand new furniture.
Rachel was surprised to learn that not only could they claim for capital allowances on their building, but that they would also claim depreciation on the furniture and inclusions of all units – a combined assets valuation of just over $90,000.
Below is what Rachel and Steven were entitled to claim in tax depreciation deductions (presuming all 3 units were available to rent 100% of the year):
Again, presuming the units were available to be rented out 100% of the year, Rachel and Steve were able to reduce their taxable income by $73,608 in the first full financial year, $291,160 in the first five full financial years. Over the full depreciable life of the properties (40 years) tax deductions totalled $1.4 million.
If the property is only available to rent 70% of the year (30% of the year used by the owners and family), then Rachel and Steve would claim 70% of the full deductions reported for that year.
The one-off cost for their depreciation schedule (included all 3 properties) was less than $1,800.
Holiday rentals for disaster relief
Insurance companies are renting holiday rental properties for people who have been displaced due to a disaster.
Owners of these holiday rentals may see a significant increase in their income and will need additional tax deductions, like claiming the depreciation deduction, to help offset their income tax payable.
Our clients Brennon and Stacey’s holiday rental at Lennox Head NSW, was only income producing during the school holidays. They rented out to an insurance company for a period of 6 months in the 2021-2022 financial year.
Brennon and Stacey claimed an additional $2,533 in depreciation deductions for their holiday rental.
How can I claim for my holiday rental depreciation deduction?
The best way to maximise your deductions and remain ATO (Australian Taxation Office) compliant is by having a Capital Allowance and Tax Depreciation Schedule prepared by Capital Claims Tax Depreciation!
Your depreciation schedule is a one-off fee that is also tax deductible.
If you would like a free estimate of depreciation deductions available to you, we recommend you speak to our team on 1300 922 220 or complete our online estimate form.