Property investments are easily one of the most lucrative opportunities for professionals, but they also come with a number of taxes. However, the Australian Tax Office details several tax deductions on investment properties – from depreciation for residential rental property to loan interest on an investment property. Most of these details are overlooked by casual investors. If you want to boost returns from an investment property, there are three tax deductions that you should know about.
Nothing lasts forever in this world, and that includes property. Over time, your investment property will be prone to wear and tear which will also bring down its market value. This is known as depreciation. Fortunately, depreciation on residential rental property and investment property is tax-deductible. You could claim tax deductions on depreciation in three ways:
- Capital Works Depreciation: Under Division 40, all properties constructed after 16 September 1987 can claim tax deductions on the depreciation costs. Any renovation done on the property is also tax-deductible. However, the deductions cannot be claimed at once. Instead, you can claim 2.5% each year for 40 years. It is a non-cash investment property tax deduction.
- Plant and Equipment Depreciation: Under Division 43, depreciation on any fixtures and fittings within the home is also eligible for a tax deduction. These include carpets, showers, cupboards, etc.
- Quantity Surveyor Fees: A quantity surveyor is a great help in creating a depreciation schedule for your property. And their fee is also considered an investment property tax deduction.
One of the most common tax deductions is made on loan interest – and for the right reasons. Most people do not have the cash to build an investment property on their own, so they take out loans from the banks. Fortunately, the interest charged on the property loan is tax-deductible. The important thing to note here is to claim the loan interest fully you need to prove that the entire loan was used only to construct the investment property.
Renting is one of the most common methods of generating revenues from an investment property. Fortunately, the government has allowed all kinds of tax concessions to rental property owners. Even better, depreciation rules for rental property allow these expenses to be claimed in the same year that you made them. Following are the expenses you can claim:
- Advertisement costs: The cost of using any advertisement platform to search for tenants is considered a tax-deductible expense.
- Rental Agent fees: Most investment property owners choose to hire a rental agent who looks after the property and serves as a mediator between them and the tenants. The fee you pay is considered tax-deductible.
- Legal expenses: Managing a rental property can lead to a variety of legal expenses. It includes preparing the rental agreement documents or getting a legal eviction order for the tenants. Fortunately, all legal expenses related to a rental property are tax-deductible.
- Utilities: If the investment property owner pays for utilities like water, gas, and electricity, then they can claim these expenses as property tax deductions. However, if the tenants are paying for these utilities, then the expenses are not tax-deductible.
From depreciation residential rental property to loan interest and utility expenses, there are many ways to maximise profits from an investment property. We hope investors can now make more informed choices.