25 March 2022

Investment Property Tax Deductions: profitable opportunities you'd want to know

Emma McLaren
Share

The goal for any investor is to be financially free, comfortable and ideally making money. An investment property is a great option to achieve this, especially with some juicy tax benefits, which we'll tell you about.

A landlord may reduce their annual tax payment in several ways, and these deductions, when taken advantage of in the right way, can really make a significant difference in cash flow.

It's worth noting that investors may only claim deductions on a property if it was rented or legitimately available for rent at the time. They can only claim expenses tied to that property and not their principal place of residence.

It's straightforward, but you need to know them to use them, and with that in mind, here are the top 10 tax deductions you can claim for investment properties.

You can claim building depreciation

Based on when the investment property was built, you can claim a deduction on the building structure's depreciation and any renovations you make to the building.

If your property was built before September 16, 1987, then you aren't qualified to claim a depreciation deduction. In the same vein, any renovations made on or before February 27, 1992, are automatically disqualified from a depreciation deduction claim.

However, if your property was built or renovated after the dates above, you're entitled to a 2.5% deduction claim for up to 40 years. You can only claim deductions for the period of tenancy or in which it was available for rent.

You can claim rental advertising charges

To successfully re-rent properties, landlords need to announce their intention to potential tenants. Landlords do this by advertising using a variety of mediums.

You can deduct advertising expenditures from your income in the same year you paid for them. Costs such as digital advertising, print media, signage and brochures to sell your property are all claimable.

You can claim loan interest

The interest paid on a loan for an investment property, as well as any bank charges incurred in maintaining the loan, can be deducted by investors.

If you pay $30,000 in interest and $300 in loan fees, you may deduct these costs from your personal tax return.

However, you cannot claim your repayments on the total amount, nor can you claim interest on the entire loan if you refinanced any part of the loan for personal reasons, even if the loan was secured by the equity in an investment property.

You can claim land tax

You can deduct land tax as long as you have a leased house on your investment property. However, the levy varies greatly between states, as does the time frame for claiming the expense.

This is why it's highly recommended to seek the advice of a tax professional or the relevant state and government expert involved to verify you are claiming the proper amount and in the correct year.

You can claim insurance cost

Insurance cost is another avenue to claim a tax deduction. You can claim the cost of insuring your rental property.

You can deduct the expense of insuring your home. To do this, you would be advised to refer to your quarterly statements or contact your provider for an annual breakdown.

You can claim garden and maintenance costs

Property owners can instantly deduct the cost of care and repair of plants and buildings, but they cannot, in the same way, deduct the cost of any new plants or alterations that bring extra value to the property.

Just like renovations, these are different and are considered ""improvements"" and must be placed under Capital works deductions.

You can claim appliance depreciation

When landlords put up their properties for rent, they often install a few important home appliances like washing machines, heaters, air conditioners, dishwashers and other assets.

In a similar manner to building depreciation, a landlord can claim any decline in value of these appliances. This claim is usually spread over some years and is dependent on the ""effective life"" of each product.

However, there are specific conditions your assets must meet before making depreciation claims.

You can only claim deductions for both new and used depreciating assets in residential rental properties if you purchased the property before 7:30 p.m. on May 9, 2017, and installed the products before July 1, 2017.

Otherwise, you may only claim depreciation on the asset's acquisition price if you bought it brand new, or there's confirmation that no one has previously claimed depreciation since it was newly made or has recently undergone extensive refurbishment.

Claims on repairs and maintenance

Repairs can be claimed as an instant deduction if they are directly related to wear and tear. For instance, if you replace a few damaged walls or roof tiles or maybe fix a damaged appliance, you may immediately deduct the expense of hiring a professional to do the repairs.

However, if you replace an appliance, you can only claim the amount as a depreciation deduction throughout the asset's life.

Similarly, if you rebuild an old fence or install new assets only to raise the value of your home, you must claim the expenditures as a renovation deduction, which is calculated at 2.5 per cent yearly for 40 years.

Claims on Council rates

Generally, rates are subtracted in the year they're paid, but only during times when the residence was rented. For instance, if you only rented your investment property for 200 days in the year, you can only claim the rates for that period. This implies you can only claim 54.8% (200/365) of the total spent on your council rate for the property that year.

You can claim Strata fees

If you own a property on a strata title, you can deduct the cost of body corporate fees.

However, if the charge includes gardening costs and maintenance, you cannot claim these expenses differently. Another case where getting advice from a tax professional is helpful.

Now, for one extra, just because we're super nice.

Claims on pest control costs

This claim can be immediately deducted by the tenant or landlord, depending on who paid for the cost of hiring a professional pest controller.

Final Analysis

That's it. Now you can pick one or more of the options, and with help from a tax advisor, you can maximise your finances.

This information is of a general nature only, and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances before acting.

Other Articles

  • 10 October 2019 - Adrian Atelj
    4 things first home buyers need to know
  • 9 October 2019 - Adrian Atelj
    4 tips for planning success when selling
  • 18 December 2019 - Vic Lorusso
    4 Tips to Consider When Selecting a Builder
  • 19 April 2022 - Danielle Redford
    Key questions to ask before buying a home
  • 15 December 2019 - Adrian Atelj
    8 Must Haves When Choosing A Rental Property
  • 19 April 2022 - Danielle Redford
    How to make a winning rental application
  • 16 October 2019 - Adrian Atelj
    8 tips for negotiating with selling agents
  • 7 October 2019 - Adrian Atelj
    A guide to buying at auction
  • 5 October 2019 - Vic Lorusso
    Adding a pool: will it add value?
  • 4 October 2019 - Adrian Atelj
    Are property managers worth the cost?
  • 24 November 2019 - Adrian Atelj
    Beginner’s Guide to Starting a Veggie Garden
  • 25 March 2022 - Danielle Redford
    Breaking a Lease with your Landlord Early
  • 18 April 2022 - Emma McLaren
    Understanding your home’s useable equity
  • 9 May 2022 - Danielle Redford
    How to flip property in Australia
  • 15 October 2019 - Adrian Atelj
    Gaining the mindset of a successful investor
  • 5 April 2022 - Danielle Redford
    Homeownership in 2022: Costs of Buying a House
  • 9 October 2019 - Vic Lorusso
    Hot interior styling trends for 2020
  • 12 March 2022 - Danielle Redford
    Your guide to different house types
  • 12 March 2022 - Danielle Redford
    Conveyancing: a cheat-sheet guide
  • 19 April 2022 - Emma McLaren
    How long does it take to build a new home?
  • 12 March 2022 - Danielle Redford
    How much deposit do you need to buy a home?
  • 9 May 2022 - Emma McLaren
    How much does a new kitchen cost?
  • 12 March 2022 - Danielle Redford
    What's the average cost to build a home in 2022?
  • 9 May 2022 - Danielle Redford
    The value of building an extra bedroom
  • 5 April 2022 - Danielle Redford
    How to make the most of negative gearing
  • 19 April 2022 - Emma McLaren
    How to buy property through private sale
  • 2 October 2019 - Adrian Atelj
    How to choose an investment property
  • 9 May 2022 - Danielle Redford
    How to determine the value of a home
  • 6 October 2019 - Adrian Atelj
    How to get your property ready for sale
  • 2 October 2019 - Adrian Atelj
    How to increase your return on investment
  • 5 April 2022 - Emma McLaren
    Stress-free interstate migration
  • 4 January 2020 - Adrian Atelj
    How to Negotiate a Lower Rent and Save Big
  • 24 December 2019 - Vic Lorusso
    How To Use Plants for Shade and Privacy
  • 28 November 2019 - Vic Lorusso
    Is a Low Deposit Loan Right for You?
  • 12 March 2022 - Danielle Redford
    Is It Worth Hiring a Buyer's Agent?
  • 7 October 2019 - Adrian Atelj
    How to style your home and wow your buyers!
  • 12 March 2022 - Danielle Redford
    Making an offer on a house in 2022
  • 16 October 2019 - Vic Lorusso
    Making the transition from rent to mortgage
  • 9 October 2019 - Adrian Atelj
    Market falling? Here’s what to do
  • 4 November 2019 - Vic Lorusso
    Mortgage Cashback: What’s the Catch?
  • 19 April 2022 - Emma McLaren
    How to negotiate a home purchase price
  • 15 October 2019 - Vic Lorusso
    Nine top tips for buying off the plan
  • 1 November 2019 - Adrian Atelj
    November Monthly Market Overview
  • 18 April 2022 - Emma McLaren
    Your Complete Pre-Settlement Checklist
  • 19 April 2022 - Danielle Redford
    How to prepare your home for the rental market
  • 24 December 2019 - Adrian Atelj
    Propagating Indoor House Plants with Water
  • 12 March 2022 - Danielle Redford
    Rent-to-own your own home schemes
  • 9 May 2022 - Danielle Redford
    Checklist for a rental inspection
  • 10 November 2019 - Adrian Atelj
    Storage Hacks for Babies and Toddlers
  • 25 March 2022 - Emma McLaren
    Using Super to Buy a Property
  • 19 April 2022 - Danielle Redford
    Essential tools for DIY home renovations
  • 16 October 2019 - Adrian Atelj
    The attraction of apartment living
  • 5 October 2019 - Pat Carbone
    The home buyer’s guide to stamp duty
  • 9 May 2022 - Danielle Redford
    How to carry out an end of lease cleaning
  • 14 October 2019 - Adrian Atelj
    Tips for keeping pets safe outside your home
  • 26 December 2019 - Adrian Atelj
    Top 10 Indoor House Plants
  • 3 October 2019 - Adrian Atelj
    Top tips for picking your ideal suburb
  • 19 April 2022 - Emma McLaren
    Which Property Type Should You Buy?
  • 9 May 2022 - Danielle Redford
    What you need to know about stamp duty
  • 19 April 2022 - Danielle Redford
    What’s the purpose of a sunset clause?
  • 10 October 2019 - Adrian Atelj
    Understanding supply and demand
  • 25 March 2022 - Emma McLaren
    What is a Granny Flat?
  • 9 May 2022 - Emma McLaren
    What is a private rental?
  • 19 April 2022 - Danielle Redford
    Buying a Property Under a Private Treaty Sale
  • 12 March 2022 - Danielle Redford
    Property Valuations and How They are Calculated
  • 14 October 2019 - Adrian Atelj
    What to look for when inspecting a property
  • 9 May 2022 - Emma McLaren
    A Guide to building a granny flat
  • 27 November 2019 - Pat Carbone
    When is the Best Time of Year to Sell?
  • 9 May 2022 - Danielle Redford
    I want to sell my home; where do I start?
  • 6 October 2019 - Vic Lorusso
    Which property costs are tax-deductible?
  • 10 October 2019 - Adrian Atelj
    Why selling your home is taking longer
  • 183 of 183 articles
    Copyright © 2021 Homes.com.au Limited. All rights reserved.