Newspaper article The Morning Bulletin (Rockhampton, Australia)

Understanding Depreciation

Newspaper article The Morning Bulletin (Rockhampton, Australia)

Understanding Depreciation

Article excerpt

MANY taxpayers (particularly those who own rental properties) only partially understand depreciation. Most know that it has something to do with the reduction in value of an asset but the complex rules which govern the calculation of depreciation ensure that the concept remains shrouded in mystery.

However, for serious property investors, the importance of depreciation in helping them maximise the return on their investment must be understood, as effective use of depreciation can have a dramatic effect on the cash generated by most property portfolios.

Put simply, depreciation is the process of recognising that an asset diminishes in value over its useful life (accountants call it effective life). As a very simple example, an asset which costs $10,000 and will be useful for 10 years will depreciate (on average) at $1000 per year, so at the end of 10 years it is no longer useful and has no value.

So, how does the serious property investor maximise the depreciation deduction? …

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