Everyone dreams of one day achieving financial freedom and there are many ways a person can achieve this dream. Owning an investment property is one example of a way that has the potential to help a person achieve financial freedom particularly when you take into consideration the many tax benefits that come with owning an investment property.
It is important to keep in mind that property investment requires a lot of time and effort. But if you feel prepared to put in the hard work, here is a list of some of the most common tax deductions available for investment properties.
Advertising Costs Related to Renting Out the Property
To make it possible for you to rent out your property you need to find tenants to live in your property. The best way the find tenants is to invest some money in advertising. The types of marketing strategies you could use include; online social media marketing or print media or signs or brochures. You are eligible to claim these advertising related expenses against your income during the same tax year that you paid for them.
If you are the owner of an investment property it is great news to know that council rates can be deducted during the year that you have paid for them. However, you are only able to claim them during periods where your property was available to be rented our or being rented out.
An example of this would be if your investment property was rented out or available to be rented out for a total of 180 days during the year you are only eligible to claim council rates for that period. This means that ultimately you can claim 49.3 percent (180/365) for the total amount that you have to pay in council rates in relation to your investment property for that year.
A property investor can claim interest repayments, however they are unable to claim repayments on the loan’s principal.
If you have a rented dwelling on your investment property you will be able to list land tax as a deduction.
It is important to know that the levy will differ hugely between each state across Australia. The timing of when you can claim the cost of the land tax also varies from state to state. It is important for you to chat to your tax advisor to make sure that you are claiming the right amount during the correct year.
For foreign owners this becomes a minefield and we recommend that you seek advice.
Repairs And Maintenance
Owners of investment property are able to claim repairs as a tax deduction if they relate to any wear and tear your property experiences. This means that if you need to replace some broken roof tiles that have been damaged by a storm or you need to repair a broken appliance you will able to claim the costs associated with hiring a professional to undertake the repairs can be claimed as a deduction. However, if you replace an appliance you will need to make sure that the cost is claimed as a depreciation deduction over the course of the lifespan of the asset.
It is important to remember that items considered as capital improvements need to be deducted over several years depending on the item. This is one area we see a lot of ATO scrutiny, and we recommend seeking advice.
The owners of an investment property are able to claim the amount of interest that is charged on a loan for their investment property and also claim any bank fees associated with the servicing of that loan.
An example of this would be if you incur $20,000 worth of interest on your loan and $200 in loan fees you will be able to claim these on your personal tax return.
However, you are able to claim your repayments on the principal sum and you won’t be able to claim interest on the entire size of the loan if you refinanced a portion of the loan for private purposes and this is regardless of whether or not the equity in the investment was used as security in the loan.
Hiring a professional pest controller will be available as a tax deduction for whoever has paid for the service either the landlord or the tenant.
Property investors can claim significant renovations as capital works deductions for a 40-year period and not as an immediate or one-off tax deduction.
Garden And Maintenance
Owners of investment properties are able to claim the replacement and upkeep of structures and plants as a tax deduction. However, they cannot automatically claim any costs associated with any new plants or changes that add additional value to the property, as these are viewed as “improvements” and therefore they must be depreciated accordingly.
It is super important for owners of investment properties to get their numbers right. Thankfully the costs associated with getting advice and the preparation of a landlord’s tax return and the expense incurred for the management of your rental accounts in the same year the costs were incurred can be claimed as a tax deduction.
Want to know more?
To discuss the taxation treatment of your property, contact us here.
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