When it comes to tax deductions and your investment property, knowing your way around tax breaks can be the difference between a healthy profit and a disappointing loss come tax time. If you own an investment property or are planning to, it’s crucial that you understand the tax consequences so you can maximise your profits and make the most out of your investment.
Having a solid understanding of the deductions you may be eligible for can save you (quite literally) thousands of dollars at tax time. That said, it’s important to also check with a professional tax agent – trying to claim deductions that you’re not strictly eligible for can land you in hot water if you ever get audited. There are countless deductions you can claim and it can get confusing!
So, without further ado, here’s everything you need to know about tax deductions and your investment property. It’s important to note that most of these tax deductions are only applicable if your property is available for rent or tenanted. The longer the period that you’re living in your investment property, the less time you’ll be able to claim your deductions.
We’ll start with the top deductions Australian property investors can make.
1. Rental advertising
One of the most obvious tax deductions for your investment property is rental advertising. For most, this is a necessary cost. After all, you might be renting your investment property for the long term, so you want to achieve the highest possible rental return. You can only do that by taking beautiful photos of your property and advertising it properly to find the highest number of applicants possible. Fortunately, any costs for photography, creating brochures, or placing ads can be recuperated at tax time.an
2. Council rates
Any rates that were paid when your property was tenanted can be claimed for the year you were renting your property. This only applies to when your property is tenanted.
3. Loan interest
Landlords can claim the interest from their loan as well as any bank fees applicable for servicing the loan. Again, this only applies to periods that the property is tenanted. However, you cannot claim interest on the entire loan if you refinanced your loan for personal reasons.
4. Land tax
You can claim a portion of land tax for tenanted properties but the amount that can be claimed varies by state. To be sure, it’s best to consult a tax professional before claiming a deduction.
5. Strata fees
If your property is located on a strata title and you pay strata fees, you should be eligible to claim these. Just check with your tax professional if in doubt
6. Property repairs and maintenance
While your property is tenanted, there will probably be at least a few repairs or maintenance costs you’ll need to cover. These may be due to normal wear and tear or due to a natural disaster like a flood. These costs could include anything from fixing a broken toilet to an entirely new hot water system. It may also include pest control. All this can typically be claimed in the same year if your property is tenanted.
As a property investor, you can also claim tax deductions to do with the general wear and tear of your property over time – in other words, depreciation. You can claim depreciation on the building itself if it was constructed within specific time frames. Just be sure to check with a tax agent on these.
Depreciation might also include items within the property itself, such as:
- Appliance depreciation, such as dishwashers and washing machines
- Floorboards or carpets
- Blinds or curtains
You may be able to claim insurance for your investment property during the period it is tenanted. If you need to, ask your insurer for a more detailed breakdown of costs to get the exact amount you may be able to claim.
9. Agent’s fees and legal fees
If you pay an agent to list or manage your rental property, you can claim these fees back at tax time. You can also claim back any legal fees you paid, such as those paid when initially renting your property.
10. Negative gearing
When it comes to tax deductions for investment property in Australia, residents can also claim negative gearing. Negative gearing is when you suffer a loss from your investment property. In other words, this is when your loan repayments and maintenance costs are higher than your rental return. In this scenario, you can use the loss to lower your income for that year. This, in turn, reduces the income tax you’ll pay. This can be useful if you’re trying to minimise short-term losses.
11. Capital gains tax discount
If you make a capital gain from the sale of your investment property, you will need to pay capital gains tax (CGT) on this profit. This tax can be significant depending on the profit you’ve made. However, if you held your property for at least twelve months when you purchased it, you can reduce your CGT by 50%. There are special rules around this, though, so it’s important to understand the details.
When it comes to tax deductions for property investors, there’s a lot to learn, and it’s important that you find professional advice from a qualified tax consultant. If you need more advice on property investing, check out our insights here.