5 Tax Deductions Every Property Investor Should Know About

Death and taxes are the two great certainties in life, but only one allows you to claim deductions.

The fast approaching end of the financial year is the perfect time for property investors to educate themselves on what they can claim to maximise their tax returns.

Here are the five deductions you need to know about.

1. Interest expenses

If you have borrowed money to invest in property, you will have been paying interest on your loans. And this financial year, you would no doubt have been paying a fair bit more than in recent years, thanks to the RBA’s aggressive hiking of cash rates.

The good news is that while it may have caused you pain at the time, there will now be more interest to deduct from your taxable income.

Say you have a $240,000 property attached to a loan of $200,000 and you are paying 5.5% interest on the loan…that’s $11,000 a year you are paying in interest. That amount can be deducted from your income.

Bank fees related to the loan or accounts attached to the investment property can also be deducted.

2. Depreciation

Depreciation is a non-cash investment deduction that allows you to claim the costs of wear and tear on your property over the years. If you contact a quantity surveyor, they can prepare a depreciation schedule for your investment property. They only need to do this once and the schedule can be used year after year.

There are 2 types of depreciation that you might be able to claim.

Capital works: If your property was built after 16 September, 1987, you can claim depreciation on the building’s construction costs. Generally you can claim 2.5% of the construction costs per year for up to 40 years from the date it was built.

Likewise, if you carry out renovation works, you can claim those costs in the future too (though they are not fully deductible in the same year you pay for it, but must be claimed in portions over several years).

Plant and equipment: This depreciation covers fixtures, fittings and other parts of the building not associated with construction. Under this type of depreciation, you can claim wear and tear on things like ovens, air conditioning, carpets, showers and cupboards.

The added bonus is that the cost of engaging a quantity surveyor for your depreciation schedule is also fully tax deductible.

3. Repairs and maintenance

You can claim money spent on repairs and maintenance as a deduction, provided any costs are incurred in maintaining the current state of the property, rather than improving it.

So if you have to replace ceiling fans for example, those costs can be claimed. However, if you decide to replace ceiling fans with brand new air conditioning, that is considered an improvement and can’t be claimed.

4. Insurance

A savvy investor will always have landlord insurance in place. It’s relatively inexpensive and can cover you against damages incurred by tenants and periods of vacancy in which you may not be receiving a rental income. The good news is that it’s also fully deductible. 

5. Property management fees

Many investors hire property managers to look after their assets for them. Their fees can range between 5 and 10% of the weekly income and they take care of rent collection, bonds, inspections, advertising campaigns if the property needs to be tenanted and, importantly, the organisation of repairs and maintenance.

These fees can be deducted, along with other landlord expenses, which may include council rates, utilities, strata/body corporate costs and office/stationery costs associated with managing your portfolio.