25 March 2022

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

Emma McLaren

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.

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