WEALTH HUB JOURNAL

How tax deductions affect your investment property

Investing in property is one of the smartest financial decisions you can make. Among the advantages of building a real estate portfolio are capital growth, creation of passive income streams, significant tax deductions, and relative protection from the whims of the market.

While there are myriad reasons to invest in property, you can help your assets work for you by taking advantage of all tax deductions and offsets. Let’s take a look at how you can best leverage your investment property to build wealth, retire successfully, and create a legacy for future generations.

What can you deduct?

These are the basic categories of expenses you’ll face with your rental property:

1. Those you can claim in the same income year that the expenses occur:

Body corporate fees, insurance costs, management, and general upkeep costs, including pest control, interest on your mortgage, land tax, and all lease document expenses.

2. Those that you will claim over multiple income years:

• All fees related to your loan, including establishment and filing fees, mortgage insurance, stamp tax, broker and advisor fees, valuation costs, and title search costs.
• Expenses for massive renovations including structural improvements and building alterations and additions. These deductions will generally be spread across decades.
• Asset depreciation in new properties.

3. Expenses that cannot be deducted from your taxes:

These can be expenses related to the purchase or disposal of the property, bills and other costs incurred by your tenants rather than yourself, or expenses that fall outside of the rental process, like any personal use of the property.

It’s important to note that, for contracts signed after 7:30 p.m. on 9 May 2017, an amendment to tax legislation prevents you, as a residential property owner, from claiming depreciation on plant and equipment in existing properties. However, new properties are not included in this amendment.

Further rules and things to consider

• You must wait until construction is finished before you can claim capital works deductions.
• The construction costs on which you base your capital works deductions can’t be the basis for any other deductions.
• If your real estate property is available to rent for only certain months of the year, or if you only rent out part of the property, or if your rental rates are below-market, apply all deductible expenses proportionately.
• Consider hiring a quantity survey to be sure you calculate your depreciable items accurately.

Investment is generally a long-term strategy, so take advantage of all tax breaks that will contribute to your bottom line and advance you toward financial independence. To be sure you’re getting the highest return on your investment property, a licensed adviser can walk you through the complicated tax laws and ensure you aren’t missing out on any deductions.

Click here to start a conversation with the professionals at Wealth Hub Australia today.

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