Top 11 Investment Property Tax Deductions
Many Australians invest in property and utilise it for business to boost their income. With the numerous tax benefits that the government provides, it’s not a bad idea to start investing in this profitable venture.
Here are the 11 top property tax deductions you can enjoy with your investment:
1) Advertisement costs
It’s normal for landlords to post ads about property vacancies in search for new tenants. Advertising comes at a cost, regardless if it was done through print or online channels. You can claim tax deductions on advertising expenses the same year you paid for them.
2) Appliance depreciation
Assets like washing machines, stoves, air conditioners, and refrigerators are sometimes offered together with the rented property. Landlords can claim tax deductions on these appliances for years parallel to the asset’s effective life.
However, the eligibility criteria for claiming tax deductions on appliance depreciations are strict. Deductions on brand-new and second-hand appliances can be claimed only if they were bought before 7:30 PM on 9 May 2017 and installed before 1 July 2017. Otherwise, tax deductions can only be claimed on brand-new assets and those that haven’t been subjected to a previous asset depreciation deduction.
Accounting services, including the giving of tax advice, preparing tax returns, and filing of papers can be claimed for tax deductions. This only applies to rental properties and not on the preparation of personal tax returns.
4) Capital gains
Capital gains tax is taken from the profit made on the sale of an investment property. This applies to properties flipped within 12 months, meaning the asset was bought and sold within a year. The net capital gain is added to your taxable income and is then taxed.
But if you held the property for more than a year before selling it, you can get a 50% discount on the capital gains tax. This means that you’ll only need to incorporate half of your profits from the property sale into your taxable income.
5) Building depreciation
If your property was built after 16 September 1987, you’re eligible to claim deduction on depreciating building value at 2.5% a year for 40 years. This means that if the property was built in 2000 for $100,000, you can claim a tax deduction of $2,500 annually until 2040.
You can also claim for deductions on building renovations made after 27 February 1992. You can claim up to 2.5% of the renovation’s value annually for up to 40 years.
In either case, the tax deductions can only be claimed during the period when the property is rented or is open for rent.
6) Insurance costs
Expenses on insuring the rental property can be claimed for tax deductions. An annual breakdown or a quarterly statement from the insurance provider is needed for filing.
7) Land tax
You can deduct land taxes on the rented investment property. The schedule and eligibility requirements vary between states though, so make sure you study the local government’s policies before filing a claim.
8) Legal expenses
Expenses on seeking legal advice and preparing of rental property documents with the help of a lawyer are tax-deductible. The cost associated with activities like evicting a non-paying tenant, going to court to resolve unpaid rent, or defending from damages claim against a third party who got injured in your rental property can be claimed for tax deductions.
9) Loan interests
Loan interest rates on investment properties may increase for the year. You can claim property tax deductions on the difference in rates plus any additional fees the bank charges for servicing the loan.
For instance, the amount of the loan interest you’ve gotten is $5,000 and $500 in fees. You can claim these on your tax return for the year. However, you can’t claim deductions on the interest for the whole loan, especially if a portion of it has been refinanced for private purposes.
10) Pest control
Either the tenant or the landlord is eligible to claim tax deductions on expenses for hiring the service of a professional pest exterminator.
11) Repairs and maintenance
Replacing broken roof tiles, repairing busted pipes, servicing an appliance, and managing similar wear and tear situations are some of the activities where the cost of hiring a professional repairman can be claimed for tax deductions.
Replacing an appliance or installing new fences to increase the value of the property is not covered under this category. A depreciation deduction or capital works deduction will be more appropriate for these kinds of claims.
Garden upkeep like the replacement of plants and similar structures can be claimed for deductions. However, the cost of adding new plants is counted as an improvement and must be claimed under a different category.
Tax deductions on investment properties can be complicated and confusing. It’s best to seek professional service, so you can correctly claim tax deductions and maximise the profitability of your investment property.