Choosing between an old or new investment property can be a difficult decision. Here are three reasons why you may want to look at a new investment property.
New properties receive a larger tax deduction than older properties. This is due mainly to the consideration given to depreciation for new properties. In fact if you purchase a property built before 1987 you may not receive a tax deduction for depreciation at all.
For example if your income is $80,000 a year and depreciation on your investment property in the first year was $7,000 you deduct the depreciation from your income and only pay tax on $73,000.
The benefit of receiving a tax deduction goes beyond just improving cash flow, it may actually allow you to purchase more than one investment property without impacting your cash flow.
Here is an example, if a new property will cost you $50 a week to service after tax deductions and an older property will cost you $90 a week without tax deductions then you may actually be in a position to purchase two new investment properties for roughly the same price as one older investment property is going to cost you.
Buying off the plan fixture and fittings
When buying new property off the plan you have the ability to gain further tax deductions through fixture and fittings. This makes a positive difference to your cash flow. Fixture and fittings include things such as floor coverings, lighting and some white goods.
The choices you make will have an impact on the amount of deductions you can claim.
For example, carpet versus timber floor boards, both have an effective life. With carpet it tends to be around 10 years and with floorboards about 15 years. If you spend $8,000 on either option your tax deductions in the first year will be greater with carpet due to it have a shorter effective life
To make choosing between an old and new investment property easier always look at the potential tax deductions and their impact on cash flow and the ability to leverage into further properties.
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