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Tax deductions for investment properties explained

By Peter Gow

Owning an investment property is a little like running a business. It provides a great source of income and builds personal wealth but inevitably comes with a series of costs that hit your bottom line.

The excellent news for property investors is that many of these expenses are tax-deductible.

Tax advantages are not just available on new properties. While an older building may have limits on what you can claim, you do not have to buy a new house or apartment to qualify for tax benefits.

There are two components of a tax claim for a rental property. These are:

  • Capital Works Allowance covers the structure, such as walls and roof tiles; and
  • Plant & Equipment covers the so-called removable assets such as carpets, stoves, and hot water system.

You should always obtain professional accounting and tax advice to understand exactly what can and cannot be claimed according to your own specific circumstances as the Australian Tax Office changes the rules regularly. For example, only investors of new property can make claims under plant and equipment assets. However, exclusions exist for those properties that have been renovated.

Those who own older properties can continue to depreciate items that fall under the capital works component, so long as it was built after September 15, 1987. And you may benefit from depreciation even if a previous owner undertook improvements.

So, working out what you can claim legitimately requires the eagle eye of a professional.

In general, you will find the following items are tax-deductible:

  • Costs associated with a property manager, which are usually 3-8% of rental income
  • Accounting and professional financial advice
  • Advertising if required to find new tenants, plus associated re-letting costs
  • Strata levies
  • Rates and land tax
  • Insurances
  • Loan interest and ongoing loan fees

Also, work with your accountant or financial adviser to build a tax depreciation schedule for your property. This document will list all the items in your property that qualify for depreciation.

It should only need to be completed once, and it can then be submitted to the ATO each year to ensure you obtain the maximum possible tax benefits from your rental property.

This article is provided for general information only and does not take into account the specific needs, objectives or circumstances of the reader. Before acting on any information, you should consider whether it is appropriate for your personal circumstances, carry out your own research and seek professional advice.

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