What tax deductions can I claim on my investment property?
If you have investments in property then you are eligible to claim tax deductions related to the expenses you incur whilst owning and maintaining each property. Any rental profit you make will be subject to tax. By claiming the available tax deductions, you can reduce your rental profit and ultimately reduce your taxable income. Here are some of the available investment property tax deductions:
Advertising for tenants
The cost of advertising for tenants is tax deductible if your property is available for rent. These costs include: advertising with local real estate agencies, posting advertisements in newspapers or local publications, and posting notices at local shopping centres.
The bank charges on your loan account (usually in the form of monthly fees) are tax deductible. Locate your bank statements to ascertain total bank charges for an income year.
Body corporate fees
These are usually charged on a quarterly basis to cover the costs of maintaining the common areas of your building.
Borrowing expenses include loan establishment fees, title search fees, costs for preparing and filing mortgage documents, mortgage broker fees, stamp duty charges, valuation fees and mortgage insurance.
You can claim a tax deduction for construction expenditure, or capital works. The deduction is spread over 25 or 40 years depending on the type of construction and the year in which the construction was completed. The construction costs of a newly built property are deductible over 40 years. To maximise your tax deductions you can obtain a quantity surveyor’s report which will list the year of construction, the construction costs, and the deductible amount each year.
The cost of cleaning professionals and cleaning products for your investment property is tax deductible.
Council rates are imposed on landowners to help fund the cost of community infrastructure and services to the local municipality. Councils generally offer a one-off annual payment or a payment plan of quarterly installments and all payments are tax deductible.
Decline in value of assets
To maximise your tax deductions you can obtain a quantity surveyor’s report which shows, in detail, the value of the deduction to which you are entitled based on the assets you own in the investment property. Alternatively, you will need to supply your accountant with information to support the purchase date and purchase price of each asset. Depreciating assets produce a partial tax deduction as these assets decline in value over time, usually over more than one year. Depreciating assets commonly found in residential rental properties include: air conditioning units, removable floor coverings, window curtains and blinds, dishwashers, furniture, heaters, hot water systems, refrigerators and freezers, stoves, cook tops and range hoods, swimming pool filtration and cleaning systems, television sets and washing machines.
Electricity & Gas
Payment for electricity and gas are tax deductible as long as you, not your tenant, pay the bill.
Foxtel is tax deductible if you supply the service to your tenants. The installation costs are generally deductible over more than one year.
Paying a gardener to trim the hedges, lay fertiliser, or mow the lawn is tax deductible. Landscaping a garden, however, isn’t an outright tax deduction. Landscaping is deductible over more than one year.
Insurance can be purchased to protect your investment properties. Insurance cover is tax deductible and can protect you against circumstances including loss of rent, rent default, theft by a tenant, building damage and public liability claims.
Interest on loans
Interest charges on a loan are tax deductible. Principal or capital repayments are not tax deductible. Only the interest component directly related to your property is tax deductible. If you are paying principal and interest on your loan then you will need to calculate the interest component for the year. Locate the bank loan statements for each investment property to ascertain the interest paid for the income year.
Internet access fees are tax deductible if you supply the service to your tenants. The installation costs are generally deductible over more than one year.
Land tax is tax deductible. Land tax is a tax levied on the owners of land and it is based on the value of land. Once you’ve completed a land tax registration form, you will be sent an assessment notice showing the land tax payable on the land you own. You will be liable for land tax if you own, or part-own: vacant land, a holiday home, an investment property, a company title unit, or a residential, commercial or industrial unit.
Legal expenses are generally incurred during the sale or purchase of an investment property. The legal costs for buying and selling a property are not tax deductible and are included in the capital gains tax calculation. Tax deductible legal expenses include the costs of evicting a non-paying tenant and the costs of terminating a lease.
Mortgage discharge expenses
The costs associated with paying out a mortgage, such as early repayment fees, are generally tax deductible.
If you pay for your investment property to be sprayed or fumigated by a pest controller, then you are generally entitled to a tax deduction.
Insurance or interest paid before the end of the financial year is generally tax deductible. To maximise your tax deductions in the current tax year, prepay your expenses before 30 June.
Property agent’s fees and commission
A property agent charges fees for maintaining a property on your behalf. The property agent lists their monthly charges in the property agent’s summary. The charges for the year-end financial statement, reference-check fees, leasing fees and monthly rental statement fees are all tax deductible. You will receive the net rental income after the property agent deducts their monthly fee.
Quantity surveyor’s fees
A great way to obtain a tax deduction, for the decline in value of the assets in your investment property, is by obtaining a quantity surveyor’s report. The report lists the items that you own in your investment property and the depreciation rate of each item. The cost of a quantity surveyor’s report is also tax deductible.
Repairs and maintenance
A repair is generally tax deductible. Renovations, improvements, replacements and extensions are treated differently to repairs and maintenance. Renovations, improvements, replacements and extensions are generally deductible over more than one year.
Secretarial and bookkeeping fees
You may need assistance tracking the income and expenses, as well as filing documents, relevant to the running of your investment property. These fees are tax deductible.
Security patrol fees
Security patrol fees are tax deductible if you engage the services of security to make your neighbourhood safer.
The ongoing servicing costs of a hot water system, an elevator or a pool heating system are tax deductible.
Stationery and postage
Keep a record of all your stationery and postage expenses for the year. Don’t dispose of your records. This is an often overlooked tax deduction by investment property owners.
Telephone calls and rental
Telephone calls directly related to the running of your investment property are tax deductible.
The cost of obtaining tax advice from a registered tax agent is tax deductible. Tax preparation fees and accounting charges are also tax deductible.
Travel and car expenses
Investment-related travel and car expenses include airfares, car hire, taxis and accommodation. These expenses are tax deductible if you incur these costs while collecting the rent, inspecting the property, or traveling for some other reason related to your investment property. To claim car expenses, you will need to record the size of your vehicle’s engine as well as the number of kilometers you traveled while maintaining your investment property each year.
Water rates are tax deductible if you, not your tenant, pay the water bill.