If you have a property with tenants or advertised for lease, you can claim various investment property tax deductions to improve your bottom line. You may be claiming some already, but are you utilising all available channels for tax breaks against your rental income?Â
Ensuring you’re getting all the possible benefits may be the difference between generating a profit or running at a loss. So, we’ve broken down everything you need to know about the tax deductions you can claim on your investment property as an income-producing asset.
Loan Interest
As a borrower, you can claim the interest repayments charged on your loan as an investment property tax deduction. Additionally, if your investment property home loan is subject to any borrowing expenses, such as bank fees and charges, these are also tax-deductible.
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Depreciation
General wear and tear on a property is inevitable and will naturally decrease its financial value. Depreciation is a claimable property tax deduction to cover this loss that you can offset against your investment property’s rental income. Two different types fall into this category:
Capital Works Depreciation
Any investment property built after 17 July 1985 is eligible for tax deductions on the building depreciation costs.
The construction costs within renovations can also be investment property tax deductions. But these aren’t fully deductible in the same way, as the costs are instead claimed in portions over several years, such as 2.5% per year for 40 years.
Plant and Equipment DepreciationÂ
You can also claim depreciation on fixtures and fittings in and around the rental property that undergo wear and tear, such as cupboards, carpets, ovens, air conditioners, and showers.
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Quantity Surveyor Fees
It’s in your best interest to seek professional advice from a quantity surveyor. They will create a tax depreciation schedule to chart the loss in value for your property, and you can also include the fees they charge when you claim depreciation deductions.
Rental Property Expenses
As the landlord, you are liable for numerous expenses related to your investment property. Many of these are claimable as rental property deductions in the same tax year that you paid for them, such as maintenance and garden expenses and strata fees.
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Advertising Expenses | Rental advertising costs landlords a fair sum during vacancy periods. If you spend money on advertising to find tenants, you can claim this expense. |
Legal Expenses | Legal counsel is a common investment property deduction. You may require a lawyer to prepare the rental documents or help you obtain an eviction order. |
Rental Agent Fees | If you employ a property agent to manage your property and maintain a good relationship with the tenants, you can claim back this fee. |
Tax Advice | Using a tax advisor to ensure your taxes are submitted correctly results in an immediate deduction. |
Utilities | If you pay for the water, electricity, or gas as opposed to the tenant, they can be claimed as a tax deduction. |
Land Tax | When renting out a house on your property, you can claim the land tax as a tax deduction. |
Repairs and Maintenance | Expenses incurred to maintain the property (not improve it) are claimable as an investment property tax deduction. |
Pest Control | You can immediately claim if you hire a pest controller to rid the premises of pests that compromise the health and safety of the property. |
Property Insurance | Rental insurance protects your rental properties and their contents, and it’s a tax-deductible expense. |
Council Rates | If you pay for the council rates as opposed to the tenant, they can be claimed as an investment property tax deduction. |
Cleaning | Whether you pay for a weekly cleaning service or have the property cleaned once the tenant vacates, you can claim an investment property tax deduction. |
Body Corporate Fees | If your investment property is a unit or a townhouse and you pay the body corporate fees, as opposed to the tenant, they can be claimed as an investment property tax deduction. |
Gardening Costs | The maintenance, landscaping and replacement of plants and/or garden structures is a claimable expense so long as it is not improving the garden. |
Stationery, Phone, and Internet Costs | You can claim any stationery, phone, or internet expenses directly linked to managing your investment property as a tax deduction. |
Accountant Costs | Accounting fees are tax-deductible. |
Capital Gains Tax (CGT)
Property investors that sell their investment property within a year of owning it are liable for CGT on the profit of the sale. Any time longer than that makes you eligible for a 50% discount on CGT, meaning you only have to include half of the capital gain in your annual tax return.
Make the Most of Your Property Investment
If you have noticed gaps where you could be capitalising on deductions to lower your taxable income, you should consider employing the services of a mortgage broker.
The Mortgage Agency has professional investment brokers who can assess your loan interest, previously claimed depreciation, rental expenses, and capital gains tax to determine where you are eligible for more benefits and further savings.
Our team can also provide guidance on the difference between negative and positive gearing, as well as the pros and cons of positive cashflow properties.
Whether you’re just starting out or have an extensive property portfolio established, contact one of our mortgage brokers today to ensure your investment properties are working for you.Â
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Disclaimer:
Please note that every effort has been made to ensure that the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to property buyers and investors. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal, tax or investment advice. You should, where necessary, seek your own advice for any legal, tax or investment issues raised in your affairs.
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