Tax depreciation is a deduction against the taxable income of a taxpayer that's generated by a property. It is one of the best tax breaks available for property owners and can lead to huge tax savings. The type of property you invest in determines the amount of tax depreciation you receive annually. One of the major investment choices you have to make is whether to invest in a house or units. Both types of properties are depreciated differently, and this means that annual tax depreciation varies as well.
Difference between a house and a unit
A house is a stand-alone dwelling usually on its piece of land. It is fully equipped with its own facilities. On the other hand, a unit is a house located in a block of similar houses, and it shares a wall with other units. The units also share facilities such as a parking space, driveways, laundry rooms, and rubbish bins. You can choose several units or invest in all the units within a piece of property.
Differences in property depreciation
Various factors affect the annual depreciation assigned to the property. They include the following:
• Construction commencement date
• Purchase price of property
• Value of land
• Cost of fittings and fixtures
While these factors vary with units and houses, on average, units receive more depreciation deductions than houses. The major reason for this is that units have more fixtures and fittings than houses. By investing in a unit, you are able to claim against more items compared to investing in a house. This increases the total depreciation allowance for units. You can work with a local accountant to get more information about the depreciation schedule of houses and units.
Choosing between houses and units
Though tax depreciation is an important factor to consider when choosing between houses and units, it should not be the only determining factor. When investing in units, you will need to pick quality developments in quality areas with a good agent, as this is what attracts tenants. You also need to consider maintenance costs of units and common areas. Also, the overall cost of building units is high due to the amount of infrastructure involved.
On the other hand, a standalone house may come with extra land which you can develop or run other projects. Also, land appreciates over the years, and this is an attractive investment option in the long-run. The initial cost of building a house and subsequent maintenance costs are not as high as with units.
Both houses and units are attractive investment options that come with savings every year. With these tips, you can choose the ideal investment option between the two.Share