Although it might cost more initially, an investment property purchase can bring you nice financial rewards. Tax deductions may be available for large amounts of expenses related to purchase, maintenance and generation of income from investment property.
This list contains tax-claimable expenses that you should include with your annual return to maximize your savings.
This is a claimable expense providing it’s strictly advertising for tenants if your property is available for rent. Advertising in local newspapers and magazines as well as advertising with real-estate agencies are examples of these expenses. Advertising to purchase a property is capital expenditure, and therefore cannot be included in its final cost.
The bank fees charged to your loan account are tax-deductible. These usually take the form monthly charges.
They are usually paid quarterly to cover running costs of the building. This money can be used for repairs, landscaping, lighting, pest control, and insurance.
These are costs that you incur when borrowing money to purchase the property. These costs are not deductible upfront. They can be deducted from the loan over a shorter term or for five years. These costs include title search and registration fees, mortgage Insurance, mortgage Broker Fees, valuation and Stamp Duty, loan Establishment fees, and documentation.
Capital expenditures and construction expenses can be deducted from taxes. The amount of deductibility can be divided over either 25- or 40 years depending on the year and type of construction. Newly constructed properties can be deducted for their construction costs up to 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.
Council rates are levied upon landowners to help cover the cost of local infrastructure and services. Many councils offer either a one time payment or a quarterly payment plan. All payments can be tax-deductible.
Decline in value of depreciating assets (also known as “Depreciation”)
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. Also, you can provide information to your accountant about the purchase date as well as the price for each asset. A partial tax deduction may be allowed for assets that lose value over time. This usually lasts for more than one year. You will find many examples of assets that are depreciating in residential rental homes, including air conditioner units, removable flooring coverings (window curtain and blinds), heaters hot water system, refrigerators and freezes, stoves cooktops and rangehoods, swimming pool filtration and cleaning systems, washing machines, and television sets.
Garden care and maintenance
This amount can be deducted and includes dump fees, tree lopping and tree expense, as well as replacement garden tools, fertilizers sprays and replacement plants.
You can purchase insurance to protect your investment property. You can buy tax-deductible insurance to protect your investment properties against theft, default by tenants, theft by tenants and building damage. Mortgage insurance is not immediately claimable but is amortized/depreciated over time as part of borrowing expenses.
The principal and capital repayments are exempt from tax. The principal and capital repayments are exempt from tax. Only the interest directly related to your property is tax-deductible. If your loan payment includes principal or interest, you will need to calculate its interest component. Locate the bank loan statements for each investment property. This will enable you to calculate the amount of interest paid over the income years.
Your tax bill can include land tax. Land tax is levied by land owners and is based primarily on land value. 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. Land tax can be applied to land you own, or part-own. This includes vacant land, investment properties, vacant land, holiday houses, and company titles.
Legal expenses are often associated with the purchase or sale investment property. Capital gains tax includes legal expenses associated with the purchase or sale of property. The legal expenses incurred in terminating a lease and evicting a tenant that isn’t paying rent are tax-deductible.
If you pay to spray your investment property or fumigate it, you may be eligible for tax deductions.
Agents of property may be paid commissions or fees
Property agents charge fees for property management. All fees related to property management are exempt from tax, including the reference check fee, monthly rental statements fees and year-end financial reports. After you have deducted the monthly fee, the agent will send the net rental income.
Maintenance and repairs
Taxes are usually exempt for repairs. Maintenance and repairs are not considered renovations, extensions or improvements. One year is the average time it takes to deduct renovations, extensions or improvements as well as replacements and replacements.
“Repairing” refers to restoring an item back to its original condition before it was damaged. It does not alter the item’s essential characteristics. An item can be repaired by simply “replacing it” with the same parts or material. A “repaired” item with better parts/materials will improve the item’s functionality or prolong its lifespan and should be considered an asset.
Keep track of all postage and stationery costs throughout the year. Don’t dispose of your records. For investors who own property, this is a tax deduction that should not be overlooked.
For tax advice from registered tax agents, tax deductions may be made. Accounting and tax preparation fees are exempted from tax.
You can make tax-deductible phone calls to help manage your investment property.
To inspect the property and collect the rent
Investment-related expenses include travel and accommodation. If these expenses are incurred while collecting rent, inspecting the property or traveling for any other reason, they can be deducted from you tax bill.
The tax deduction for water rates is available if you pay your water bill.
These are just some of the most common deductions that you can make for investments properties. However, there are other deductions that may be available for your specific investment property.