Millions of Australians are applying for home loans to buy investment property. If you are considering investing in a property and renting it out, you might want to know about its tax deductions. You might have questions such as “Can I deduct mortgage interest on investment property?” »« Can I claim maintenance costs? “” What can I not claim on investment properties? “Etc.
Understanding what you can claim on investment property can help you save a considerable amount of money each year. Read on to find out why you can claim a deduction as an investor.
You can claim deductions on repairs and maintenance on your new rental property. Some of the regular expenses include advertising for tenants, water rates, corporate fees, cleaning, property tax, pest control, insurance, and fees and commissions for real estate agents.
You can also claim any trips you make that are directly related to your investment property, including inspections and rent collection.
At first, these expenses may seem insignificant, but they can add up to thousands of dollars.
Capital gains tax (CGT)
If you decide to sell your rental property within one year of owning it, you must pay capital gains tax on the profit from its sale. However, if you have owned the house for more than a year and then decide to sell it, you will be entitled to a 50 percent off on your CGT. As there are different ways to calculate this tax, it is best to consult a tax professional.
This is a future expense that has already been paid. The key word is future. If you pay for something in the same fiscal year, it will not be considered a prepaid expense. To fully understand what you can claim for this expense, see the Detailed guide to the Australian Taxation Office.
You can also claim certain legal fees. Including those associated with:
- Evict a tenant who does not pay rent.
- Expenses related to legal action for loss of rental income
- Defense of a claim concerning damage suffered by a third party on your rental property.
Remember, you cannot claim legal fees which include attorney fees and other legal costs associated with resisting land repossession, and costs associated with defending your title to your property.
Interest is one of the biggest tax deductions you can claim. You can either claim a deduction on the total interest charged on the loan or part of it. You can only deduct this expense if your property is rented or actually available for rent in the same year that you decide to claim a deduction.
While claiming the interest deduction sounds straightforward, there are a few details you should understand. For example, if you have used or are using the property for personal reasons, you are not allowed to claim it. Also, if you added another purchase, such as a car, to your rental property loan, you cannot claim a deduction on the car portion of your loan.
Additionally, if you are wondering, “Is mortgage interest on investment property tax deductible on investment property?” “, The answer is no. According to the Australian Taxation Office, you cannot claim a deduction on the mortgage because it is not used to generate income even if the loan is secured by your rental property.
By understanding what you can claim, you will be in a better position to take advantage of all the tax filing opportunities available. To claim any of these expenses, you must have proof. So make sure you always keep receipts, invoices and other documents relating to your investment property.