By outlaying a bit of cash to make your investment more appealing than the next guy’s, not only will you have a top quality tenant paying a premium to rent your property, you will also gain taxation benefits. When tax time rolls around and you receive your refund, you will find that the depreciation allowances on such improvements will have increased the amount you get back. For instance the first year’s depreciation could be $2,100, which means that, assuming you come under a 36% tax rate, you could save over $700 on your tax bill. On top of this, should you choose to utilise the scrapping rule, allowing you to write off the cost of any items that you have ‘scrapped’, you could be eligible for a further tax credit of $5,000.
When you think about it, all of this translates to a pretty handsome return on your additional investment. And given that you could borrow for the costs of renovation work from your bank, based on the increased end value of your renovated property, you can reap all the rewards without putting your hands into your own pockets! Not bad, right?
Source : Property Investment Update (5 December 2008)