With the end of the financial year drawing in, it’s time to sort out your tax affairs. If you don’t get them in order then things can go very wrong when the government come knocking. If you own investment properties, there are a number of items you will be able to deduct from your overall tax bill.
When looking at tax deductible expenses, make sure that you take full advantage of every last one, as they may not be available this time next year – so get them while you can.
The vast majority of investors will see that interest is their largest potential tax deductible. The interest you’re charged on investment loans is tax deductible, which includes any money borrowed to make repairs and to cover purchasing costs.
Keep in mind though that this is also applicable for the purpose of seeking rental income, which will be seen as deductible.
Be careful of loans that are split between personal and rental usage however. An example may be a property where you live, but also rent part to somebody else. The interest will only relate to the portion of the property which is rented to the other individual.
2) Travel Expenses
If you’re making a journey to your investment property to make inspections, you’ll find that these are tax deductible. Examples of such expenses could be motor vehicle expenses for visiting local properties, air fares and accommodation expenses for interstate properties etc.
Travel expenses could soon be lost as a tax deductible, thanks to the intervention of the federal government. This is due to individuals claiming less than salubrious travel expenses such as family holidays. For clarification, you can always talk to your accountant to find out if the travel expense qualifies for tax deduction.
3) Management Costs
If you decide to pay a property manager to take care of your portfolio of investment properties, the cost of their services will become tax deductible. Additional management costs such as council and water rates, body corporate fees, cleaning, gardening and pest control will also become tax deductible expenses.
The cost of repairs is deductible. You need to be careful if you’re an investor however, because the cost of improvements is not necessarily deductible. Make sure you know the difference between a repair and an improvement.
Initial repairs which mitigate potential damage or fix actual damage, are not claimable. Repairs which restore the original condition of a property are claimable. Improvements such as replacing worn-out floors or substituting in faulty furniture, are not claimable as a tax deductible.
5) Depreciating Assets
Depreciating assets is quite a complicated area to look at, so let’s keep it as simple as possible. These assets are those which do not form a part of the building – they depreciate over time and will need replacing further on down the line – items such as carpets and blinds for example.
Assets whose value costs less than $300 may be claimed as tax deductible, otherwise you are permitted to claim its deduction in value over time, using a prime cost or depreciation method.
As of next financial year, the federal government are proposing changes to the depreciation rules. These changes will mean that any item in a house upon purchase, cannot be claimed as a depreciating asset by the new owner(s).
The information and links provided on this website are for general information only and should not be taken as constituting professional advice. This information does not take into account the financial situation or particular needs of individual readers. Before making any decisions about matters discussed on this website, you should consider whether it is suitable for you in light of your own circumstances, and seek appropriate advice.