It’s tax time, and whether you’re a first time investor or you’ve held your investment property for a while, it’s important to understand the tax implications of owning a rental property. We look at 5 surprising aspects of tax and property investing that you may not be aware of.
Before we check out the details, remember it’s always a good idea to speak with a registered tax agent for tailored advice on what you can – and can’t – claim as a tax break in your particular circumstance.
1. Rental income? Maybe it’s not all you need to declare
Other receipts such as rental bond paid to you because of damage caused by a tenant, insurance payouts for lost rental income, and even funds the tenant has contributed towards costs like repairs may need to be included in your rental income.
2. A surprising snippet about tax deductible interest
Plenty of the ongoing costs of managing and maintaining an investment property can usually be claimed on tax including the interest paid on your investment home loan – but that’s not all.
If you need to take out a loan to make repairs or purchase a depreciating asset like an air conditioner for your rental place, you may also be able to claim the cost of interest on this loan.
3. The one thing you could be doing to claim deductions
The tax man’s golden rule is that expenses relating to your property investment can normally only be claimed as a tax deduction if the property is rented or available for rent.
A few indicators can suggest that you’re not genuinely trying to rent the place out. These include half-hearted attempts to advertise for a tenant, imposing unreasonable conditions on prospective tenants (“no dogs, no kids, no fun!”) or setting a rent that is way above what’s normal for similar properties in the local neighbourhood.
There can be an exception to the rule that your property must be available for rent. If you’re building an investment property, you may be able to claim deductions for costs associated with the land while you’re building. Be sure to check this with your tax professional.
4. Travel claims are off the menu
Since 1 July 2017, landlords can no longer claim the cost of travel to visit and inspect their rental property even if it’s to collect rent or complete some repairs.
5. The rules for depreciation have changed
Depreciation refers to the steady write-down of an asset’s value to recognise the gradual decline in value of things like furniture, carpets or appliances in your rental property.
The 2017 Federal Budget introduced changes to the rules around depreciation, with property investors no longer able to claim depreciation for used plant and equipment that was already in the property when you purchased it. This new rule only applies if you exchanged contracts to purchase the rental property after 9 May 2017.
Remember, for expert tax advice on your investment property, speak to a registered tax agent. For professional support with your investment home loan, talk to your Aussie Broker.
You may also be interested in What does it all mean? Aussie’s guide to 10 property finance terms, Getting the most from your investment property and 7 property investment mistakes you don’t want to make.