How to know what investment property tax deductions you can claim
Tax time is almost upon us!
To maximise the amount of money you get back in your pocket come July 1, what exactly can you claim as an investor – and what claims could get you in trouble with the tax man?
What you can claim:
The biggest cost related to your investment property tax deductions is obviously your mortgage interest. This is claimable at tax time, but note that only the interest (not the principal) can be deducted.
Maintenance, repair, and service costs related to your income-producing property investment can be claimed, but these expenses should occur during the period that the property is being rented out to be eligible.
For instance, if you replace a broken cupboard in your rental property after you buy it, but before it is available for someone to rent, then the repair cost is likely not tax deductible.
Even travel and car expenses can be deducted from your taxes, as long as the sole purpose of the trip is for property inspection or maintenance. The ATO looks carefully as these types of claims, so be sure to check in with your accountant if you’re unsure about the tax status of your travel expenses.
Other costs that may be allowable as investment property tax deductions are pest control, gardening and lawn mowing costs, and fees and commissions paid to property agents.
There are also tax deductions that you can only claim over a number of years. Included in this are your borrowing expenses like establishment fees, title search fees, and broker fees. Sometimes, this can include mortgage and valuation fees.
Borrowing expenses of more than $100 can be claimed over five years or the term of the loan, whichever is less. If it totals less than $100, then you claim a full deduction within the same income year.
You may also claim tax deductions for depreciating assets – items that have declined in value over time. They should be acquired as part of your property purchase or subsequently bought for the property. Examples of these are furniture, television sets, and refrigerators. Calculating the depreciation deduction can be complex and tricky, so it is best to hire the services of a conveyancer to do the job for you.
Finally, you may also claim capital works expenditures on residential rental properties over a period of 25 to 40 years. It is important to make sure that capital works deductions do not exceed the total construction costs. Also, note that you cannot claim these deductions until the construction has been completed.