28 Oct Landlords: what is depreciation and are you overpaying tax on your rental?

Landlords: what is depreciation and are you overpaying tax on your rental?

A lot of people hate paying tax, even if it is one of the prices we pay for the many benefits of civilisation.  However, nobody likes paying tax on more profit than they actually received.  And yet, far too many landlords do just that simply by missing out on valid, legal deductions like depreciation. If you want to stop overpaying tax on your rental and improve your true return on investment (ROI), understanding how to claim standard wear and tear on your property assets is the crucial first step.

You calculate profit by deducting expenses from your gross income.  If you miss claiming rental deductions, this inflates your calculated profit, and you end up paying more tax than you need to.

One potentially massive deduction we see too many landlords miss is depreciation. 

What is Depreciation?

Depreciation simply allows you to claim the cost of assets over their useful life, if you are not allowed to all at once.  It accounts for standard wear and tear. For residential landlords, although the IRD doesn’t allow you to deduct the cost of land or a residential house itself, you can depreciate many things inside and around the property. 

Some of these are obvious, but others are highly technical:

• The Obvious: Free-standing furniture, appliances, and curtains are separate from the building, meaning you can depreciate them.
• The Hidden: The IRD treats fixed laminate flooring (glued down) as “part of the building” which blocks you from claiming it. However, because the IRD deems floating laminate flooring separate, you can easily claim depreciation on it.

How do I Claim It?

To uncover these hidden deductions, start by using a specialist valuation service like Valuit.  For a reasonable fee, an expert assessor will provide a detailed report itemising the value of every single depreciable asset on your property.  For many of our clients, the resulting tax benefits comfortably exceed the cost of the report in the very first year.

While you secure the best results by ordering this assessment immediately after purchasing a property, you may still benefit significantly from an assessment even if you have owned the rental for several years.  If you’re usure, a quick chat with us will help you decide if it makes sense for your portfolio.

Year-to-year, your accountant must review any new purchases, maintenance, or renovation expenditure. This ensures we categorise your costs correctly so you claim every dollar you are entitled to.

Ready to stop overpaying your rental tax?  Whether you want to buy your first investment property, or need a fresh set of expert eyes on an established portfolio, we can help you maximize your ROI.