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What expenses can I claim on an investment property?

Property investment is a great step to take towards financial freedom. Not only can you increase your cash flow, but you could also benefit from a series of tax deductions on your rental property.

Generally, in order to claim any of these deductions you will need to provide records. Plus, you can usually only claim deductions during times where the property is being rented out.

Find out what you could be eligible for so that you don’t miss out on big tax savings.

1. Home loan interest

Any interest that you pay on top of your investment mortgage is tax deductible. This is a massive tax saving that is hard to miss. Don’t forget that you can also claim associated fees for things like home loan maintenance and offset account fees.

You won’t be able to claim interest on any portion of the loan you use for private purposes. For example, if you refinanced to get some cash to pay for a new car.

2. Negative gearing

When an investment property is negatively geared, it means that an investor’s mortgage repayments and rental expenses outweigh their rental income. These short term losses are usually tax deductible.

Because of this, some savvy investors will intentionally negatively gear their property to maximise their tax savings. Investors anticipate that any losses will be offset by future capital gains when the property is sold after its value increases.

Positive gearing refers to the opposite effect. Your rental income exceeds your property expenses, giving you a positive cash flow. This is great for building a passive income, but it does mean that your taxable income increases.

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3. Advertising

Chances are that you’ll need to spend a little money to find suitable tenants. Any money you spend advertising or marketing the property can be a deductible. This could include photography fees, and any money you spend on listing websites, print advertising and brochures.

4. Repairs and maintenance

Repairs and maintenance are tax deductible, but you need to make sure that you’re not getting confused with property improvements.

The purpose of a repair is to restore a damaged item or feature to its original condition. For example, to claim repairs on a damaged fence, you’d have to use the same materials as the original fence. If you were to use enhanced materials to repair the fence, this would likely be classed as an improvement which is treated differently by the ATO.

Maintenance refers to work done to prevent future damage and keep the property in a ‘rentable’ state. An example of maintenance would be standard plumbing work.

5. Depreciating assets

As a landlord, there’s a high chance you’ll undertake some property improvements. These could be a major renovation, or simply installing new appliances.

While you won’t be able to immediately claim these as tax deductions, you will likely be able to claim these as a capital works deduction or depreciation in the future. Depreciation tax claims account for wear and tear and the value reduction of assets or structures in your rental property.

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6. Property management and agent fees

Unless you decide to manage your rental property on your own, you’ll likely have to pay for a property manager. A property manager will take care of the day-to-day running of the rental property, including collecting rent from tenants and attending to any issues.

Many real estate agencies offer property management and these fees are tax deductible.

7. Insurance

As a property investor, you will probably have the following kinds of insurance attached to your rental property:

  • Building
  • Contents
  • Public liability

You may also have income protection insurance, which is a good idea if a large amount of your personal income comes from your rental income. Any relevant insurance you pay can be claimed as a tax deduction.

8. Strata

If your investment property is a unit or a townhouse you will likely pay strata fees. Any body corporate fees you pay if your property is on a strata title can be claimed against your taxable income.

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9. Other potential deductions

You can usually claim these other expenses as tax deductions:

  • Council rates
  • Water bills
  • Land tax
  • Certain legal fees
  • Cleaning
  • Gardening and lawn mowing
  • Gas and electricity
  • Pest control
  • Stationary
  • Some travel expenses
  • Lenders Mortgage Insurance (LMI)

What else should I know about?

Tax can be a confusing and complicated topic to navigate. One thing you need to avoid doing when calculating tax deductions is doubling up. For example, you can’t claim garden maintenance deductions and strata if the strata fees already cover this kind of maintenance.

A tax accountant will be able to provide you with situation specific advice to help you lawfully maximise your tax savings. The ATO’s website also provides a lot of information on tax deductions and you may be able to contact them to clarify information.

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: interest rate, home loan, investment, investment property, investment loan

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