DO YOU KNOW the available tax deductions when buying an investment home?
Investment properties can not only make you money long term, they can save you money right from the word go – via legitimate tax deductions.
To begin with, all of your purchasing and holding costs are tax deductible. Immediate and ongoing cash deductions include: loan costs, interest, management fees and council rates.
Depreciation on fixtures, fittings and the building itself represents non tax deductions that you can claim over the life time of the investment.
Adjust your tax rate and improve your cash flow
Section 1515 of the Australian Taxation Act makes it possible for you to reduce your taxable income based on the deductions of your investment property. This means you are taxed on the reduced amount and may even fall into a lower tax bracket. You can complete a variation request form AT ANY TIME throughout the year. You don’t have to wait until the end of the financial year.
Adjusting your tax rate in this way frees up your cash flow and can help with the ongoing costs of your investment property (or any other ongoing expenses you have!).
Get detailed advice from your accountant or the ATO
There are a number of deductions you can claim if you are renting out your investment property. Following is a summary of expenses you can claim. However it pays to get detailed advice in this regard from your accountant or the ATO, as there are also a number of restrictions to what kind of expenses you can claim.
Borrowing expenses you may claim:
- stamp duty charged on
- loan establishment fees
- title search fees charged by your lender
- costs for preparing and filing mortgage documents
- mortgage broker fees
- fees for a valuation required for loan approval, and lender’s mortgage insurance, which is insurance taken out by the lender and billed to you
Claim interest expenses from a loan you have used to:
- purchase a rental property
- purchase a depreciating asset for the rental property (for example, to purchase an air conditioner for the rental property)
- make repairs to the rental property (for example, roof repairs due to storm damage)
- finance renovations on the rental property, which is currently rented out, or which you intend to rent out (for example, to add a deck to the rear of the rental property), and purchase land on which to build a rental property
Legal expenses that you can claim:
- preparation of a lease agreement with your tenant
- costs associated with evicting a non-paying tenant
You may be able to claim the following capital works expenses:
Source: Australian Taxation Office
- extensions, such as a garage or patio
- alterations, such as adding an internal wall, kitchen renovations or bathroom makeovers
- structural improvements – such as a gazebo, carport, sealed driveway, retaining wall or fence.
- replacing part of the guttering or windows damaged in a storm
- replacing part of a fence damaged by a falling tree branch
- repairing electrical appliances or machinery
- painting a rental property
- oiling, brushing or cleaning something that is otherwise in good working condition
- maintaining plumbing