Tax Deductions for Investment Properties

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Understanding investment property tax deductions can significantly impact your tax return and rental income.

Many investors miss out on claiming expenses because they lack the knowledge provided by the Australian Tax Office (ATO).

Knowing about these deductions can make a big difference in your investment property’s financial success.

Here’s a simplified guide to help you maximize your investment property tax deductions:

1. Depreciation

Just like cars, your investment property will experience wear and tear over time, which affects its value. This is called depreciation.

For properties built after September 16, 1987, you can claim depreciation on the building and any renovations as a tax deduction. You can spread out these deductions over several years.

You can also claim depreciation on fixtures and fittings like carpets and appliances.

To make sure you’re maximizing your deductions, consider hiring a quantity surveyor to prepare a depreciation schedule. Their fees are also deductible.

2. Loan Interest

If you took out a loan to buy your investment property, you can claim the interest as a deduction. However, if you used part of the loan for personal expenses, you can only claim the portion used for investment purposes.

3. Rental Expenses

Various expenses related to renting out your property are deductible:

  • Advertising costs to find tenants
  • Fees for rental agents
  • Legal expenses related to renting or managing the property
  • Council rates, utilities, and property insurance
  • Repairs, maintenance, pest control, and cleaning
  • Gardening costs, body corporate fees, and communication expenses (like phone and internet)
  • Bank charges and accountant fees

4. Capital Gains Tax (CGT)

If you sell your property within 12 months of buying it, you’ll pay CGT on the profit. But if you hold the property for more than 12 months, you get a 50% discount on the CGT.

Remember, there are some expenses you can’t claim, like personal use expenses, repayments of the loan principal, solicitor fees for property transactions, and stamp duty fees.

To make the most of your deductions, keep records of all expenses related to your investment property.

By understanding and utilizing these deductions, you can optimize your tax return and make the most of your investment property.

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