Have you considered leasing out your investment property furnished? There are a number of advantages and disadvantages depending on your property, location and financial circumstances.
To help you weigh up the pros and cons, BMT has answered some commonly asked questions when it comes to rental furnishings.
- Is furniture tax deductible for rental property?
- What’s the easiest way to claim deductions for furniture?
- Can I charge higher rent if the property is furnished?
- What types of tenants will a furnished property attract?
- What happens if my furniture is damaged?
- When is it a good idea to have an unfurnished property?
Q: Is furniture tax deductible for rental property?
A: In most cases, furniture purchased by an investor for an income-producing property will attract depreciation deductions. Depreciation refers to the natural wear and tear a property and its assets experience over time. The Australian Taxation Office allows investors to claim a deduction for this wear and tear.
Furniture within an income-producing property is typically claimed as a plant and equipment deduction, which refers to the easily removable items within an investment property.
To be eligible to claim depreciation for furniture within a rental property, you must:
- purchase the items when the property is income-producing or genuinely available for rent
- directly incur the cost of the furniture.
Find out more about legislation surrounding plant and equipment assets here. While purchasing brand new assets can be expensive, depreciation deductions help to offset this cost by reducing your taxable income and boosting your tax refund.
Q: What’s the easiest way to claim deductions for furniture?
A: A tax depreciation schedule is the best way to ensure you claim all the deductions you’re entitled to. A BMT Tax Depreciation Schedule covers all deductions available over the lifetime of a property (forty years) and is 100 per cent tax deductible. During the FY 2018-19, BMT found residential property investors an average first year deduction of almost $9,000.
Q: Can I charge higher rent if the property is furnished?
A: A landlord can typically charge a higher rental rate for a furnished property. Depending on your location and property type, you may be able to charge between $50 to $100 more.
While this seems like a fantastic return on an investment, any landlord considering furnishing a rental property should first consider the reduced tenant demand. Most tenants are looking for unfurnished property, so be sure to assess your local property market carefully.
Q: What type of tenants will a furnished property attract?
A: Furnished properties typically attract travellers, young tenants who haven’t accrued their own furniture and business professionals who frequently move for work.
With this in mind, furnished leases reflect the intermittent nature of such tenants and are usually between three and six months long. These types of leases are usually suited to major metropolitan areas or smaller regional centres that have a fly-in fly-out lifestyle.
Q: What happens if my furniture is damaged?
A: If the lease states that you are renting out a furnished house with appliances, then you’re not only responsible for keeping the building in good shape, but the furniture and appliances as well.
However, if the tenant damages your belongings, you may be entitled to make an insurance claim so it’s important to have proper cover.
Landlord insurance is a type of insurance policy designed to protect property investors from tenant-related risks including loss of rental income and malicious or accidental damage caused by the tenant. As landlord insurance is an investment expense, it can also be claimed in your annual tax return.
It’s important to note that each landlord insurance policy will differ. For more information, contact BMT Insurance on 1300 268 467.
Q: When is it a good idea to have an unfurnished property?
A: An unfurnished property is more likely to appeal to tenants looking for a home over the long-term. Typically, this means that leases will be for six to twelve months.
Some tenants prefer the opportunity to furnish the property and can be put off by a landlord’s furniture. This is especially the case if a tenant already has their own furniture that would need to be stored elsewhere.
If you’re undecided on what to do, perhaps advertise your rental as unfurnished and include the option to have it furnished for additional rent in the listing description.
There are a number of advantages and disadvantages to furnishing an investment property. It’s important for investors to consider their personal circumstances before making a decision.
Thanks for the information – we obtained a depreciation schedule from you for our last investment property and it was very beneficial.
My question here is – I’m confused at how you can depreciate furniture you buy for a furnished apartment ONLY if it’s bought when the apartment is genuinely available to rent. However it won’t be genuinely available to rent until you have the furniture, taken your photos and offered it to rent as a furnished apartment. So how is it even possible? Thoroughly confused on that one! And would appreciate hearing your thoughts. 😀 Thanks!
Hi Caroline,
Thanks for your comment.
Good question! The 2017 legislation changes mean that ‘previously-used’ plant and equipment (e.g. furniture) can’t be depreciated.
This means if you purchase brand-new furniture solely for the apartment then you can still claim depreciation on it when the property becomes genuinely available for rent, you just won’t be able to claim depreciation before this or use it personally.
Thanks,
The BMT Team