Whether you’re thinking about investing or are already in the investment game, it’s smart to brush up on your property investing knowledge – especially when it comes to the tax deductions you may be eligible for as an investor.
Here are the top four tax deductions I believe property investors should know about:
The cost of day-to-day maintenance, improvement and management fees
Maintenance to your investment property such as repair of a leaking roof, fixing a broken tap, etc is usually a tax deduction. Your property agents’ fees and insurances are also deductible.
Munzurul Khan from Keshab Accounting says that “you need to treat your property investing as a business. The cost of running your business is a deductible expense.”
This means you could claim the costs of running your home office (internet, electricity, portion of rent etc) – to the extent you use it for investing. Accountancy fees, any property investing subscriptions (online, RP Data and magazines) and your adviser’s fees are also deductible.
Loan interest and borrowed funds
Most people know that the annual interest paid on the investment loan is tax deductible. Experienced investors might know that interest on all borrowed funds for the investment property is tax deductible, whether it’s for the deposit, stamp duty, legal fees and so on, as long as you have clear justification and can show the funds were connected to the investment purchase. This is true whether the funds were borrowed from the bank or from another property’s equity.
TIP! The largest expenses are the ones that are targeted if you are ever audited. In the case of property investment, that’s the interest expense. Make sure that the purpose and the use of the funds are for investment or business purposes and not private.
The use of the funds is what’s important here – not the security of the loan. If you increase an investment loan for owner occupied purchase or renovations it IS NOT deductible.
A deduction often overlooked, especially in older properties, is depreciation. Many people assume older properties don’t have any depreciation value – but this isn’t true. Any renovations or improvements to the property made since the construction can also depreciate. Your accountant can’t prepare a depreciation schedule for you – you must use a professional quantity surveyor.
Brad Beer from BMT Tax Depreciation advises hiring a reputable company who can catch all the depreciation available in your property. “Many renovators forget to include the scrap value of items being replaced.” He also recommends using their free online calculator to get an idea of what you may be able to claim BEFORE purchasing an existing property.
Some travel to purchase, maintain or inspect your investment can also be claimed, which is especially handy if you’re investing inter-state. Even if your real estate agent, broker or conveyancer are local you could still claim by way of cents per kilometre for any travel to these specialists or to your property itself.
If you haven’t claimed some of these items in the past, you may be able to have them backdated. We recommend speaking to a professional tax accountant experienced in property investing to help you recoup any deductions you have missed and to ensure you don’t miss anything in the future.
How do you keep up to date with your property investment knowledge? If you’ve got a great source of information, please let us know in the comments below so we can check it out for ourselves!
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