Property investment: Eco-Upgrades and Depreciation Benefits

The ongoing green revolution sees individuals and businesses adopting environmentally friendly practices to preserve and respect the environment.

As a property investor, choosing to build or renovate your home with eco-friendly features is a wise decision. This not only reduces resource consumption and waste production in your daily life, but it also offers long-term benefits such as lower energy expenses and improved indoor air quality.

By making sustainable choices in your own life, you contribute to creating a cleaner planet for future generations while also feeling a sense of fulfillment. However, there is an additional aspect to consider: the tax benefits associated with investment properties.

While managing unavoidable expenses like land tax, council rates, body corporate fees, or property agent fees, it’s essential to explore every opportunity for tax deductions. Owning an energy-efficient home, for instance, allows you to leverage the Australian Taxation Office (ATO) incentives that help reduce your overall taxable income.

Here’s how it works:

Investment Property Tax Deductions and Depreciation Explained

In Australia, various rental expenses can be deducted from your rental income at tax time. These expenses include advertising costs, strata fees, bank fees, loan interest payments, lenders mortgage insurance, maintenance costs, borrowing costs, and property management fees.

Furthermore, property investors can claim tax depreciation on both the buildings and fittings of their investment properties. This depreciation accounts for the gradual wear and tear of these assets over time, enabling investors to reduce the income tax owed on rental income.

There are two types of deductions you can claim:

  1. Capital works: These deductions pertain to the depreciation of the building itself, including construction or renovation costs, such as installing a new roof or retaining wall.
  2. Plant and equipment: These deductions apply to items that can be easily removed from the investment property and have a shorter useful life, such as smoke alarms and air-conditioning units. These assets generally depreciate at a higher rate compared to the building itself due to quicker wear and tear. Investors can often claim immediate tax depreciation on these items, typically within the first five years.

Implementing eco-friendly improvements to your investment property not only benefits the environment but also reduces your tax burden by taking advantage of cost write-offs and depreciation.

For instance, if you install energy-efficient appliances or make other qualifying energy-saving enhancements to your property, you may be eligible to deduct a portion of the costs on your tax return.

Four Environmentally-Friendly Property Upgrades for Investors with Depreciation Advantages

  1. Enhance Rental Property Efficiency with Eco-Friendly Heating and Cooling Systems
  • Reduce carbon emissions by investing in insulation for walls and roof cavities, eligible for capital works tax deduction.
  • Install double-glazed window panels for temperature regulation, depreciable as a capital works deduction.
  • Improve ventilation and airflow with ceiling fans, a cost-effective choice and fully tax deductible if under $300 each.
  1. Benefit from Solar Panels for Green Power and Depreciation Benefits
  • Install solar panels to provide cost savings and environmental benefits, attracting potential buyers or renters.
  • Depreciate the cost of solar panels by 10% each year over their effective life of 20 years.
  • Check for local government rebates to maximize savings.
  1. Save Water and Lower Expenses with a Rainwater Tank
  • Install a rainwater tank for tenants’ use in irrigation, toilet flushing, and laundry.
  • Reduce household expenses and water bills, making the property more attractive to renters.
  • Purchase and install a water tank for under $5,000, depreciating it at 40% each year over its effective life of 5 years.
  1. Attract Tenants with an Electric Car Charger in the Garage
  • Install an electric car charger to provide convenience and eco-friendly charging for electric vehicle (EV) owners.
  • Save tenants time and money on public charging or gasoline expenses.
  • Claim depreciation at 20% each year over the charger’s effective life of 10 years.

Note: It is advisable to consult with a tax professional or relevant authorities for up-to-date and accurate information regarding depreciation benefits and tax deductions.

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