In this article:
Are you missing out on investment property deductions? We’ve got a few you might not have considered.
If you own an investment property, it’s time to supercharge your tax return! Here are some of the lesser known ways you could maximise your claims as tax time rolls around.
Pay interest in advance
We all know about claiming investment loan interest on our tax return, but have you ever considered a prepayment of 12 months of interest in one go? With interest in advance loan facilities, you can bring forward your interest expense to the current financial year. This could be a suitable strategy if your income is a bit higher than usual, and you need to reduce tax.
Invest in a depreciation schedule
Now, this is one way to get ahead. A depreciation schedule prepared by a quantity surveyor details all the items in your property that can be depreciated. Many investors forego this step because of the upfront cost, but it could save you thousands in the long run. It’s a non-cash deduction, so no money leaves your pocket, but you still get the tax benefit. You’ll generally have more deductions for a new property.
There have been legislative changes that affect what you can and can’t claim, specifically if you purchased a second-hand property after 7.30pm on 9 May 2017. Be sure to get expert advice from a specialist quantity surveyor.
Know the difference between repairs and improvements
There’s a big difference between repairs and improvements when it comes to claiming deductions. Understanding the rules could guide your decisions when choosing to replace or repair items in your investment property.
The cost of repairs and maintenance can usually be claimed in the tax year that the expense was incurred. However, if you make improvements or replace items, the expense will be added to the capital cost of the property and will be counted in your capital gains tax (CGT) calculation when you sell.
You also need to understand the rules about making repairs in the first 12 months of owning a property. These types of repairs will often be considered capital improvements. Keep a record of any renovation expenses as you’ll need them when it comes time to sell.
Don’t get caught out; the ATO is watching
With property investment being so popular in Australia, the Australian Taxation Office (ATO) has an eagle eye when it comes to spotting higher-than-usual deductions. Here are a few things to remember:
- As a private investor, you’re no longer able to claim travel to check on your investment
- You can only claim expenses for the time your property was rented or genuinely available for rent. (You probably can’t claim for that family beach house)
- You can’t claim expenses that have been paid by your tenant, such as water bills
- Make sure you attribute income and deduction according to the ownership of the property
- Keep accurate records of expenses you’re claiming.
Don’t forget your standard property investment deductions too!
If you’re serious about maximising your tax returns, it’s essential to have specialists on your side for expert advice. Line up an experienced property tax accountant and speak to your Yellow Brick Road mortgage broker.