Rental Property Tax Deductions
If you rent out your property or it is genuinely available for rent, you can claim deductions for most of the expenses you incur in these periods.
You only claim deductions for the expenses that relate to the income-producing use of the property.
You can’t claim a deduction for expenses for your personal use of the property.
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You can claim a deduction in the income year you incur expenses for your rental property that relate to the management and maintenance of the property, including interest on loans.
If your property is negatively geared, you may be able to deduct the full amount of rental expenses against your rental and other income – such as salary and wages and business income.
Rental Expenses – Immediate Deductions
Management & maintenance expenses
Advertising for tenants – directly by you or where the agent charged you
Body corporate fees or Strata Title fees and charges
# Special levies for capital works on a building can only be depreciated at 2.5%
Security patrol fees
Rates & Taxes
Water rates, charges & usage
Fees/commissions – including GST
Postage & Petties
Lease document expenses
Pest & Fire Alarm Inspections
Annual inspections to ensure pests, termites or smoke alarms
Installation of termite barriers or smoke alarms systems over $300, will need to be depreciated under Div 40
Administration expenses including
Stationery used to maintain your rental records etc.
Postage on documents relating to property management
Telephone calls relating to property management – ATO prefers to see a diary
Legal expenses relating to debt collection or tenant problems
Electricity & gas – were not covered by the tenant
Settlement Adjustments on Purchase – see your solicitor’s settlement statement
Balance of council rates outstanding
Balance of water rates outstanding
Balance of body corporate fees outstanding
Repairs & Maintenance –
(ongoing, initial & improvements)
Ongoing Repairs relating to wear & tear or damage resulting from renting out the property. The idea is that an expense is considered a repair when the functionality is being restored. Generally, repairs include
Initial Repairs – immediately after purchase Initial repairs – capitalised under Div 43 2.5%
Plant & Equipment under $300
Which overwise depreciated under Div 40 (ie) microwave for $183
Interest & loan a/c fees on loans to finance investment properties.
For the interest to be deductible the loan must have been applied to acquire an income-producing asset e.g. rental property Where loans are used for both investment property and private assets the interest has to be apportioned based on how much of the principal was used for which purpose. There needs to be a direct nexus between the debt interest and the related investment property, it not where the debt is, but rather why the debt exists!
Travel expenses –
Not allow for individuals, trusts or SMSF, however still available to companies, or those running a business or managing rental properties (ie) 10+
Quantity Surveyor’s Report
Cost of preparing a Quantity Surveyor’s report showing depreciation expenses
Special Building Writeoff
Seminars – the cost of attending property investment seminars – only to the extent that they relate to operating or maximising the return on currently owned properties
Where money is spent on relevant seminars before any property is acquired, there will be no deduction available
Excessive cost may also be considered, with no deductible, (ie) $10,000 to learn how to get rich buying properties.
Rental Expenses – Deduction over a number of years
deductible over the period of the loan where the loan or 5 years, which is the lessor.
Loan Application fee
Lenders legal fees
Title search fees
Lenders mortgage insurance
Stamp duty on mortgage
Mortgage registration fees
Depreciation on Plant & Equipment,
Div 43 Capital Allowance (see separate for complete list)
Supply and installation costs, (ie), stove $500 + installation $150 = $650
Depreciation of the building construction
Building Main Structure, walls, kitchens, bathrooms, hardscaping – ATO calls Div 43 Capital Works deduction at 2.5% flat over 40 years. Include initial repairs, and renovations within the 1st year to make the property fit for rental
Capital Improves, repairs that go beyond restoring to improving, (ie), replacing a fence, versus replacing a few planks.
immediately after purchase or within the 1st year, are capitalised under Div 43 at 2.5%
Rental Expenses – No Immediate Tax Deduction
Capital Costs associated with buying and selling, however are used to reduce a capital gains
Purchase Price – part of the Cose Base for any further Capital Gains on Sale (GCT)
State Government State Duty on Purchase
Legal / Conveyancing fees
Pest & Building on Purchase
Buyer Agent Fees
Legal / Conveyancing
Agent Commissions & Advertising
If no rental property was purchased, otherwise capitalised as part of the cost base for CGT.
Seminars to acquire properties
Due Diligence, Reports, advice prior to purchase
Vacant – Not available for rent
Holding costs on Holiday or rental properties not genuinely available all year round for rental, these costs form part of the cost base for CGT (3rd Element)