21 Mar 2011

Tax Deductions for Your Investment Property

Knowing a thing or two on tax deductions when investing in Australian property will help you significantly boost your tax return. However, most of the time, investors will miss out on cost claims due to their lack of expertise in the field. 

Fortunately, there’s an easy way around taxes, if you know what you are up against, way before you apply for a home loan.

To help you find your way to the perfect home, we’ve put together a handy guide to provide you with the most useful tips addressing taxes, tax deductions, and real estate in Australia.

Read on to learn more. 

What’s ATO’s Opinion on the Subject

As far as taxes go, there is a lot you can claim when it comes to investment properties. The ATO - Australia’s tax office - states you can claim an immediate tax deduction for your current-year income. This will cover all expenses related to the maintenance and management of the property.

● Advertising

This is a great example of a tax-deductible expense regarding Australian properties.
If you want to take advantage of this aspect, you can use advertising platforms in order to find tenants. By including the tenants in your rental property, you are at a gain, as advertising real estate is a tax-deductible expense.

● Loan interests 

While you can't deduct the amount borrowed at the beginning of the loan, you may be able to deduct the interest you pay monthly on investment expenditure. Investors are pretty fond of interest-only loans, as they allow them to deduct their complete repayments. This goes on before the loan reverts to both interest repayments and the principle. Worth mentioning is that if you refinanced a portion of your mortgage for personal reasons, you won't be able to claim any interest paid.

Council rates 

Only when the property is occupied by a tenant will one be able to claim council rates. For instance, if your rental property was only occupied for 200 days out of the entire year, you won’t be able to claim council rates for the whole year, but rather for those 200 days only.

Land tax 

You can deduct land tax only if the residence on your investment property is properly rented out. Since the pandemic started, land tax breaks have been granted by several state governments. But, this only applies to landlords who provide rent reductions to COVID-affected tenants.

● Strata fees 

In case your investment property has a strata title, which addresses townhouses and apartments, you can enjoy its benefits

● Depreciation 

Depreciation, which generally means tear-and-wear on your property, can also be claimed as a tax deduction. This can be represented and applied to the following assets: timber flooring, furniture curtains, carpets, and appliances.

● Repairs 

Repairs that come as a result of wear and tear can be claimed as a tax deduction in the same income year. Such repairs include fixing a broken appliance or repairments caused by a storm or flood.

● Insurance

If you have insurance on your investment property the landlord insurance will cover tenant-related risks like building damage, property damage, and loss of rental income.

How to Claim Deductions on Your Investment Property

The ATO has begun to crack down on a number of fraudulent or dishonest acts, including those pertaining to investment properties. Do thorough research on the claims involved in the tax deduction process just so you are legally correct, otherwise, you may be subject to fines. 

As you approach the finish line of the procedure, keep all relevant receipts, bank statements, and invoices in place, alongside solid proof of both advertisements and rental listings. The ATO has stated that rental expense and income records must be kept for at least five years, as you cannot make any claims when it comes to tax returns without prior showing proof of eligibility. 

To ensure you have all details on property investment tax deductions in one place, you can also consider consulting an accountant or a tax professional. All in all, always remind yourself of the golden rule, that if used for investment purposes only, there are many deductible aspects you are looking at, including the following.

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