Property investment: what can I claim in tax?

If you anticipate tax time with a sense of dread, you’re not alone. For property investors, in particular, the end of the financial year can be confusing to navigate. That’s why it’s important to be aware of the various tax deductions you may be eligible to on your Perth investment property. For example, did you know that investment expenses such as renovation repairs, home loan interest, and property management fees can be claimed on tax? Here are some of  the investment property tax deductions you may be entitled to.

What you are eligible to claim

Repairs

You can generally claim tax deductions for the cost of repairs on your Perth investment property as long as they are a result of the leasing of your property. However, make sure you don’t fall into the trap of confusing ‘repairs’ with ‘capital improvements’, as these will be treated differently come tax time.

To clarify, the ATO defines repairs as works carried out to fix damage to your premise and general deterioration of your property; essentially, repairs restore your property to its original state prior to the damages. If you plan on claiming property investment tax deductions for repairs, don’t forget to document these so you can correctly categorise them come tax time.

Interest on your home loan

If you borrow money to purchase a rental property, you will be able to claim the interest charged on that loan as a deduction, provided your investment property is being rented or is available for rent in the same income year. Be mindful that if you use your loan for a number of purposes, your loan will be divided accordingly to determine the tax-deductible portion. For example, if you use your home loan to purchase an investment property that you use for both rental and private use, only the interest associated with the rental portion can be claimed on tax.

Property management fees

Another tax-deductible expense is all fees paid to the property managers looking after your Perth rental property. Providing you are using the property for rental purposes, any fees you pay to property management companies or real estate advisors will be classed as part of the overall expenses of the property for that year and can therefore be claimed against your taxable income.

Strata fees

Strata fees refer to the common expenses in shared developments or complexes. This can include the cost of maintaining shared areas such as staircases, lifts, passages, common garden areas, and common laundries. Your individual strata fee is calculated by dividing the total cost of the strata’s expenses by the unit entitlement of your strata lot. These fees are typically tax deductible, so don’t overlook strata fees when organising your investment property tax deductions.

Depreciation

A depreciating asset refers to an asset that has a limited life expectancy and is therefore expected to decline in value over the time it’s used. Examples of depreciating assets are carpets, furniture, appliances and the structural elements of a property. An asset’s decline in value begins from when you first use it or install it ready for use. Providing your property commenced construction after September 1987, you can claim your property’s depreciation on tax. Even if your property was built after this time, you may still be eligible to claim depreciation on the items within it.

Negative gearing

You would be hard pressed to research property investment without coming across the term negative gearing multiple times. So what does it actually mean? Negative gearing is when the cost of owning a property (this includes loan repayments and additional costs associated with property ownership) exceeds your rental income. Whilst it sounds bad in principal, negative gearing can actually prove beneficial for investors come tax time. If your property is negatively geared, you will be able to offset your loss against other taxable income such as your salary to reduce your overall taxable income for that year. Whilst you are still making a loss in principal, your property should still be increasing in value over time, meaning you could still make a profit on your investment when it comes time to sell.

Perth’s property management experts

As a property investor, managing an investment on a day-to-day basis can be overwhelming, especially during tax time.  In addition to overseeing the day-to-day running of your rental property, Rentwest will provide you with the advice and support you need to maximise returns on your Perth investment property. To find out more about Rentwest’s services and property management solutions, feel free to get in contact on 08 9314 9888 or send us an email at rentals@rentwest.com.au.

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