Accounting for amortization

Founded in 1978, Washington Brown has become one of the most respected organizations in Australia for quantity control. Tyron Hyde leads the organization as CEO.

YIP: Tell us a little about yourself. How did you come to Washington Brown's head?

Tyron Hyde: When I grew up, I never saw myself becoming an expert in depreciating property. I wanted to be a dentist, but I decided that I did not really want to spend my day looking in the mouths of others – so I chose to become a construction economist. But in 1991, while I was finishing my studies, the interest rates of homebuyers and property developers were exorbitant, so the construction work in Sydney was virtually stalled.

The only way for me to get a job with my degree was to volunteer; I spent a year with Washington Brown as a cadet, working for free. After I hired full time, I started a division on the tax / depreciation side of the business. This exponential growth has become so important that I have bought from the other side of the business. So, I guess the short version is that I started working there and that I liked the company so much that I bought it!

[Depreciation] is an important part of the equation you should do before buying, as it is the only non-cash tax deduction on the property

YIP: It is probably fair to say that most discussions of investment properties involve value appreciation. So, why is depreciation of property so important?

TH: First and foremost, I want to be very clear: you only have to buy a property for the purpose of enhancing it. There is no benefit to buying a property just for tax relief. But when you buy investment properties, you want to be able to take advantage of available tax deductions.

One of these problems is depreciation, which is essentially wear and tear on property. Indeed, investment properties are purchased on the basis of income, and as a result wear is taken into account, just as with, for example, office equipment.

HIGHLIGHTS

1978 : Washington Brown is established

1991 : Tyron Hyde begins working at Washington Brown as a cadet

1992 : The OTA decision designates the quantity surveyors as the appropriate body to estimate the construction costs of real estate investors

1997 : Tyron Hyde launches the Damping division of Washington Brown

: Hyde becomes majority owner and director of Washington Brown

2013 : Claim it! – a first Australian book on the depreciation of goods – is published

2017 : Washington Brown helps the Treasury to formulate the revised law on depreciation. Hyde becomes a member of the Australian Institute of Quantity Surveyors, the highest level of industry

2018 : continue to claim it! A guide to real estate depreciation, an updated version of Claim It !, is published

2019 : Hyde co-authored a new book, Secrets of Property Millionaires

YIP: Do you think that amortization of properties is underutilized by investors? How does it fit into the negative gear?

TH: The depreciation is part of the negative conversion equation. But there is a disparity between how negative registration is reported and what it really is: depreciation is just one of many factors.

Nevertheless, this is an important part of the equation that you should do before buying because it is the only in-kind tax deduction on property. Any other tax deduction you have as an investor will require you to pay.

But it's complex; The depreciation of a property depends on a large number of factors, including the fact that it is residential or commercial, whether new or old, the building materials used – up to the carpet floor.

A specialist like Washington Brown can help you navigate the complexities and decide if your purchase will be worth it.

"If maximum amortization applies to new property, it does not necessarily mean that new property is the best option"

YIP: What are some of the key things that investors need to know when they are trying to use the depreciation of assets?

TH: Look at the cash flow.

I am a strong believer in understanding the cash flow of an investment property – repayment over rent is obvious, but there is one tonne. Potential buyers must understand all the consequences of other costs generated, especially the costs of entry and sale – stamp duty, court fees, property tax, property management, agency costs, advertising / marketing , capital gains, etc. Since the beginning, many investors have ignored it and are disappointed when a property is liquidated.

Amortization benefits focus on the purchase of new properties. However, you can still claim real estate built after 1987. While maximum depreciation applies to new properties, it does not necessarily mean that a new property is the best option for you.

Of course, you can still earn money by buying new ones – but you should ask for independent financial advice and make the calculations before investing in any product. Get a second opinion if you think you need it.

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ABOUT THE EXPERT
To find out more about how Washington Brown can help you better understand the depreciation of your investment property, visit www.washingtonbrown.com.au
To buy Tyron Hyde's book, continue to claim it! Property Depreciation Guide, visit www.washingtonbrown.com.au/blog/keep- claiming-it

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