Depreciation

Depreciation refers to the decrease in the value of an asset over time.

What is depreciation? 

Depreciation refers to the decrease in the value of an asset over time. It often occurs as a result of wear and tear, ageing, or obsolescence. 

Can you claim depreciation on a house? 

Assuming that your house is an investment property, you can in fact claim depreciation as a tax deduction. There are 2 main types of depreciation you can claim on your property. 

Building depreciation 

This pertains to the gradual deterioration of the structural components of the building, like walls, floors, and roofs. Building depreciation is usually applied on a diminishing value basis and can be distributed across the effective lifespan of the structure. 

Plant and equipment depreciation 

This concerns the gradual wear and tear of movable and mechanical assets inside the property, like appliances, air conditioning units, and carpet. Depreciation for plant and equipment can be asserted over their effective lifespan, usually using a prime cost basis. 

How is depreciation different from amortisation? 

Amortisation and depreciation are different concepts. Amortisation is associated with paying off a debt through regular instalments, reducing the outstanding balance over time. 

On the other hand, depreciation is the decline in the value of an asset, such as property or equipment, over its useful life due to factors like wear and tear. While both terms relate to some kind of decrease in value over time, they apply to different financial contexts.

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