We all know what end of the financial year means… tax time!
We know that for most people, the word ‘tax’ is enough to put you to sleep, but for property investors, tax time can be (and should be) a happy time. The average property investor claims average interest deductions of over $12,000 a year.
Typically, deductions outweigh investors’ rental income. For those with bigger loan balances and/or newly constructed properties, the gap is significant and can mean thousands in negative gearing benefits.
With the recent changes to rental property tax deductions following the federal budget, it’s important for property investors to ensure they are claiming everything they are entitled to at tax time. Otherwise, you’re just handing your money over to the ATO and we’re sure you don’t want to be doing that.
To help, we’ve put together a property investor tax deduction cheat sheet:
CAPITAL WORKS DEDUCTIONS
If your property was built after 1985, you are entitled to claim 2.5% per year of the property’s construction cost. Only half of all property investors actually claim this, so many are missing out on thousands. This also applies to renovations.
Depreciation is a tricky one, as investors can now only claim depreciation on brand new homes or brand new items in the property purchased by investors. However, there is evidence to suggest that depreciation claims aren’t fully taken advantage of by most investors.
It’s also worth noting that depreciation can be back-claimed. If you forgot to include something in your depreciation claim last year then don’t worry, you can claim it next year!
INTEREST ON LOANS
If you’re still paying off the mortgage on your investment property, the interest payable on your mortgage is deductible. This seems fairly obvious, we know, but there are many investors who still don’t claim interest expenses.
Unfortunately, you can’t claim interest on holiday homes or other homes for personal use.
REPAIRS AND MAINTENANCE
Repairs and maintenance can only be claimed if they directly relate to wear and tear or if damage occurred as a result of renting the property to tenants.
The thing to be mindful of is that there are some things the ATO consider ‘improvements’ rather than repairs or maintenance.
OTHER SMALL COSTS
There is a whole pile of thing you can claim on tax as a property investor. For example, you can claim council rates, insurance, land tax and body corporate fees to name a few.
At Red & Co, we are property investors ourselves and are happy to offer you any guidance when it comes to all things property – including tax. If we can’t help you, we will refer you to the people who can. We also recommend checking out the ATO’s Guide for Rental Property Owners here.