Top five most tax-efficient assets for investment property renovations

The allure of renovations extends beyond mere property enhancement. It presents a strategic opportunity for investors to optimise cash flow through meticulous depreciation planning.

More than two-thirds of BMT’s depreciation schedules involving renovated or improved investment properties, generating valuable data revealing significant insights into the renovation sector.

While Division 43 capital works often harbour substantial depreciation deductions for the wear and tear on the property’s physical structure, Division 40 plant and equipment assets that are easily removable from a property also generate significant depreciation deductions.

These deductions are calculated over the effective lives of the assets as determined by the Australian Tax Office.

A decade’s worth of data has uncovered the most lucrative Division 40 plant and equipment assets to consider when renovating an investment property.

 

1. Floor Covering

Over the past decade, floor coverings like carpet, vinyl, linoleum and floating timber floors have contributed significantly to depreciation values during renovations, resulting in the combined depreciation deductions of $359,010,880 for clients.

Notably, among these floor coverings, floating timber floors have yielded the highest depreciation deductions for investors thus far.

 

2. Window Covering

Window coverings are essential for privacy, light control and energy efficiency in homes. They enhance interior design by adding texture, colour, and style.

Properly chosen coverings can also protect furniture and flooring from sun damage, contributing to the longevity of interior spaces while creating a comfortable and inviting environment.

Window coverings like blinds, curtains and shutters earned clients a combined $361,453,152 over the past ten years, with blinds being a clear frontrunner earning clients an incredible $281,421,691 in depreciation deductions.

 

3. Solar Powered Generating System

As electricity tariffs remain a persistent area of concern for many and with energy incentives prompting Australians to explore alternative household energy options, the popularity of solar-powered generators has surged.

This trend has also translated into excellent depreciation deductions for investors. Over the past decade, a remarkable $143,816,234 in depreciation deductions was earned through their investment in solar-powered generators.

 

4. Appliances 

Kitchen renovations typically rank among the top priorities in residential properties because they significantly impact property value and rental income.

A modern, functional kitchen attracts tenants and can justify higher rental rates.

Clients earned an impressive $322,025,715 in depreciation deductions from kitchen appliances alone over the past decade, reflecting the enduring value and importance of considering the appliances chosen when upgrading or renovating an investment property.

 

5. Furniture

Furniture emerged as the most unexpected and most valuable asset in terms of depreciation deductions, accruing an astonishing $556,537,552 in depreciation deductions over the past decade.

Each item listed in this data had diverse effective lives as specified by the Australian tax office, with a considerable number qualifying for instant asset write-off.

Before beginning renovations, it’s crucial to seek advice from a depreciation expert, highlighting the essential role that depreciation deductions play in making informed decisions about property renovations.

This proactive approach enables investors to align new Division 40 asset selections with their investment goals, whether prioritising immediate tax benefits or long-term returns.