The Block auctions: Could a $30 million tax break attract investors?
Tools down! This Sunday sees all eyes focused on McGeorge Road, Gisborne as The Block auctions go to air - and a hidden perk could see investors dominate the bidding.
It's taken three months and plenty of tradies, tears and tantrums to transform vacant land into a series of luxury homes in the 2022 season of The Block.
Will the homes set on acreage a 1.5-hour drive out of Melbourne resonate with buyers?
CoreLogic figures show less than two in three homes listed for auction actually sold under the hammer in Melbourne last weekend.
But this is television, and anything can happen.
This year, however, The Block homes have a multi-million dollar card up its sleeves, and it could prove a hit with investors.
Bradley Beer, CEO of quantity surveying firm BMT Tax Depreciation says there is a bonanza of tax breaks up for grabs for investors on The Block properties.
"Because these properties have been substantially renovated, both plant and equipment depreciation and capital works deductions are eligible to be claimed, making them even more enticing to the investor," he says.
Depreciation reflects the natural wear and tear of a property and the assets within it, such as hot water heaters, over time.
Investors can normally claim depreciation as a tax deduction as long as the property is rented or available to rent.
Unlike other tax deductions, depreciation doesn't require investors to make a financial outlay, and that's where the big appeal lies.
BMT says there is a staggering $30 million in depreciation tax deductions just waiting to be claimed on this season of The Block. It's the highest depreciation tab the program has ever produced.
Beer explains, "The teams on The Block 2022 have spent upwards of $5 million in construction costs per property, and most of those are tax deductible for investors."
Ankur and Sharon's property (House 3) has generated the highest total deductions, estimated at $5,840,166.
The other five properties aren't far behind according to Beer, with an average of $5,292,597 in total depreciation deductions.
This could give an investor an average depreciation claim of over $203,340 in the first financial year alone.
Busting the myths
The Australian Tax Office (ATO) says depreciation is the second largest tax deduction available to property investors after loan interest.
However, there are common misconceptions about depreciation, including the property being too old.
BMT says most properties, new and old, carry depreciation deductions. So, it's always worth taking a closer look at what you can claim.
Making the most of depreciation
Many investors fail to take full advantage of depreciation, which probably reflects the complexity involved.
Different parts of a rental property - carpets, fencing and so on, can each have different depreciation rates.
Moreover, ATO Assistant Commissioner Tim Loh recently urged rental property owners to ensure they know what can be claimed as a deduction.
"We are concerned about mistakes," says Loh.
"Getting it right the first time, will ensure you receive the tax refund you are owed, and avoids us knocking on your front door down the track."
The solution to avoiding a 'please explain' from the tax man can be organising a professionally prepared depreciation schedule for an investment property you're thinking of buying - or which you already own. With an accurate schedule in hand, it may be possible to amend two previous years' tax returns to recoup any unclaimed or missed benefits.
Better still, the cost of a tax depreciation schedule can be claimed on tax, and the numbers hold for the 40-year (tax-deductible) life of the property.
With so many juicy tax benefits lurking within The Block homes this year, investors may be tempted to shrug off rising interest rates and make the trek to the Macedon Ranges to join the line-up of hopeful bidders.
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