There is an abundance of rental property tax deductions available for property investors. Claiming these deductions will lower your taxable income and boost cash flow.
Taking advantage of all available tax deductions can help investors build a successful property portfolio and support stronger opportunities for future investment growth.
Here are rental property tax deductions all investors should be claiming:
- Negative gearing
- Interest repayments
- Advertising fees
- Repairs and maintenance
- Body corporate fees
- Property management fees
- Cleaning expenses
- Council rates
- Gardening and lawn mowing
- Water charges
- Pest control
- Legal fees
- Tax depreciation schedule and accounting fees
- Refinancing costs
- Land tax
- Property depreciation
One of the most advantageous rental property tax deductions available to investors is negative gearing.
An investment property is negatively geared when the return, or rental income is less than the property’s expenses. Basically, this means the property is making a loss and the cash flow is negative. This offers a significant tax benefit because the owner can claim the loss as a tax deduction to offset their taxable income.
You can claim the interest charged on your rental property’s home loan. This is in addition to any other fees related to servicing the loan.
It’s important to note that you can’t claim payments made on the home loan’s principal amount. The same applies if you have used part of the loan for private purposes. In this instance, any interest repayments deductions must be apportioned.
Protecting your investment property against underinsurance is an important step. The two most common insurances you need for a rental property includes landlord insurance and building and contents.
Your insurance premiums are tax deductible. When you pre-pay for your insurances you can claim it back in the same financial year.
Finding the right tenants for your property usually requires advertising and marketing. When you organise this yourself, you can claim any expenses from doing so.
However, if the rental is managed through a property management agency, you can’t claim any advertising they conducted separately. This is usually included in their property management fees.
Repairs and maintenance
The repairs and maintenance you complete on your rental property can be significant tax deductions.
Repairs are work completed to fix damage or deterioration of a property, such as replacing part of a rusted gutter or broken fence. Meanwhile, maintenance is the work completed to prevent damage to the property such as varnishing a deck.
It’s important to be aware of the difference between repairs, maintenance and capital improvements. A capital improvement is when the condition or value of an item is improved beyond its original state.
A common example of a capital improvement is retiling a bathroom, which would need to be depreciated as a capital works deduction.
Legislation changes made in 2017 may affect your eligibility to claim travel expenses to and from your rental property.
Generally, you can only claim travel expenses if you are in the business of renting residential properties. Therefore, the ATO only allows the following entities to claim travel expenses:
- corporate tax entity
- superannuation plan that is not a self-managed superannuation fund
- public unit trust
- managed investment trust
- unit trust or a partnership, where all members are entities of a type listed above
Body corporate fees
If your rental property is part of a strata, you can claim the cost of the body corporate fees.
If part of this fee includes maintenance and cleaning to common areas such as the gym or garden, you can’t claim these costs separately.
Property management fees
It’s common to have a rental property managed through a property management professional. Under this arrangement, you will have a dedicated property manager that looks after things like inspections, organising leases, advertising and handling disputes.
The fees associated with having a property manager are entirely tax deductible. You can even claim your own expenses associated with calling or emailing them.
Sometimes you may need to get your rental property cleaned regularly as part of the lease agreement, or once a tenant has left. You can claim these cleaning expenses as tax deductions.
The same applies if you have purchased cleaning products specifically to clean the rental property yourself. The cleaning product costs are also tax deductible, however you can’t claim for your own time spent cleaning.
Local government and council rates are 100 per cent tax deductible for the entire time your property is available for rent.
The Australian Taxation Office (ATO) considers these as ongoing expenses that are incurred in the course of earning rental income. The same applies if your local council charges an annual emergency services levy.
Gardening and lawn mowing
If your property’s lease agreement has garden and lawn maintenance included, you can claim any expenses associated with doing so as a tax deduction. This includes hiring professional lawn mowing and garden maintenance services.
Any water charges you pay for the property are tax deductible. While water usage is sometimes covered by the tenant, the expenses you directly incur, such as the annual service charge and any sewer service charges, can still be claimed.
Household pests can include anything from fleas and cockroaches to ants and mice.
Determining who is responsible for pest control can usually be found in a lease agreement. When you are responsible for pest control of the property, the expenses can be claimed as tax deductions.
Including utilities under a lease agreement can increase tenant demand and the property’s rental rate. Any utilities you include and pay for, including electricity and internet, are tax deductible.
Only some legal fees can be tax deductions. Generally, only legal fees associated with rental activities are tax deductible. For example, if you went to court over malicious damage the tenant made to the property, you could claim the costs of doing so.
When legal fees are classed as capital cost, they aren’t immediately tax deductible. The easiest way to remember what a capital costs is, is to think of them as the costs associated with acquiring the property such as stamp duty. Any legal expenses associated with buying the property aren’t tax deductible and instead make up part of the property’s cost base.
Tax depreciation schedule and accounting fees
Paperwork and tracking income and expenses can be extensive when owning an investment property. Having an accountant to look after this for you is the easiest way to make it a stress-free experience.
Your accountant uses a tax depreciation schedule prepared by a specialist quantity surveyor to determine your depreciation deductions every year. Both your accountant’s fees and the tax depreciation schedule fee are tax deductible in the same year you paid for them.
With interest rates at record lows, many homeowners are looking for a better deal on their mortgage.
As an owner of an investment property, you can claim any administrative costs associated with refinancing the property’s mortgage. The type of fees changes between providers, but some common examples are loan establishment fees, early discharge fees and break fees.
Land tax is paid annually when you own a property (that isn’t your main residence) that’s above the land tax threshold.
You can claim land tax on your investment property as a tax deduction each financial year. Land tax amounts, when it’s payable, the threshold and available exemptions and concessions differ between states and territories, so it’s important to check what applies to you.
Depreciation is the only non-cash deduction available to property investors.
Property depreciation is the natural wear and tear of a building and its assets over time. The ATO allows owners of income-producing properties to claim this as a tax deduction.
There are two types of deductions. Capital works deductions (Division 43) is the building’s structure and the assets that are permanently fixed to the property.
Capital works are deducted at a set rate of 2.5 per cent over the lifetime of the property (40 years). On average, capital works make up 85 to 90 per cent of a total depreciation claim.
Plant and equipment depreciation (Division 40) can be claimed on the assets which are easily removable from the property or are mechanical in nature.
Depreciation deductions for plant and equipment assets work differently to capital works. Plant and equipment deductions are determined using their effective life rate under the diminishing value or prime cost method, the low-value pool or as an immediate deduction.
Claiming depreciation deductions are an essential component to property investment, failing to claim will result in missing out on thousands of dollars.
BMT Tax Depreciation’s specialist quantity surveyors make sure all claims are maximised, ensuring you claim all available deductions compliantly. The BMT Guarantee means if we can’t obtain at least double our fee worth of deductions in the first full financial year claim, there will be no charge for our services.
To find out more on how to claim rental property tax deductions, including depreciation on your investment property call the experts on 1300 728 726 or Request a Quote.