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'Scrapping' schedule can help underinsured property investors

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A tax depreciation schedule can help property investors claw back thousands of dollars after natural disasters and provide some relief for many who are currently underinsured, according to BMT Tax Depreciation.

CEO Bradley Beer says if an asset is destroyed and no insurance payout is received, the landlord can claim the un-deducted depreciable value of the asset through a process called “scrapping” commonly used during property renovations.

This is available provided the landlord has a tax depreciation schedule prepared before the disaster hits which an accountant can use to determine the remaining value at the time the asset was destroyed.

“When we talk about scrapping, it’s normally in the context of disposing of assets during a renovation but investors should be aware that the same applies for involuntary disposal,” Mr Beer said.

“Because it’s an instant deduction, it can lead to a big tax refund. While it doesn’t fix the situation, it can provide a cash flow boost to the landlord,” he said. “Landlords need to know there are things they can do to recoup some damages if they aren’t adequately insured.”

BMT, which is also an insurance brokerage, says insurance payouts can alter the future depreciation claims of a property and recommends investors speak to their accountant in those situations.

The firm also says having an adequate landlord insurance policy “must always take precedence” to scrapping.

“Being underinsured is not worth the risk,” Mr Beer said.