There are a lot of expenses that homeowners and property investors need to shoulder in the ongoing use and maintenance of their homes.
So, if you're looking to ease the pain of tax time, it pays to be across what you can and can't claim.
Tax deductions for investment property owners
When the end of the financial year rolls around, property investors qualify for several tax deductions as long as they have earned rental income from the property and only during the rented period. Here is what you can claim as a property investor.
For many, a tax-saving strategy is negative gearing, meaning the rent doesn't fully cover the costs the property investor incurred on the property. These costs could be home loan interest paid, maintenance, agent and advertising fees, and expenses on depreciating assets like appliances or furniture. The idea is that you take a short-term loss on your investment property in exchange for long-term capital growth and beneficial tax treatment.
Property investors may qualify for tax breaks on any capital works undertaken before renting out the property and even the costs of constructing the property. The ATO states that any capital works refer to any significant construction or renovation of the property or any fixed installation attached to it.
Many factors determine the tax deduction rate and duration, such as the property's age, type of renovation or construction, and period of renting out the property.
Owning an investment property also means that you're entitled to claim the decline in value of the building's structure and permanent fixtures (ovens, carpet, light fixtures, etc.). This tax deduction is significant for newly built properties because fixtures and fittings are valued higher and lose value quicker.
Maintenance and home improvements
One of the benefits of being a property investor is claiming all your repairs and maintenance, including plumbing, electrical, and general up-keep of the property, such as painting and new flooring. Money spent on renovations and extensions generally counts towards capital works, so the key is to spread the deductions over 25-40 years.
It’s important to be diligent when claiming deductions, and keeping receipts and records for the financial year is crucial - not doing so could cost you a substantial amount of money. And finally, find a great accountant, it really pays off. A knowledgeable accountant has up-to-date information, and the best part is, their fees are tax-deductible.