How is my tax return affected now that I’m a property investor?
Making the decision to invest in property can seem like a never-ending list of upfront expenses, so you’ll be pleased to know that when the end of the financial year rolls around, you can get the tax man working for you for a change.
Here are five tax time deductions for property investors.
Loan interest and bank charges
Many seasoned property investors take out interest only loans, so they can accumulate equity and use it for further investing, without being encumbered by having to pay down the property’s principal value.
Interest paid on an investment property’s home loan is fully tax deductible, along with accompanying bank charges, so even though interest rates are currently at historic lows, interest paid will be a chunk of money come tax time.
Keeping your investment safe requires an outlay on insurance policies, which are deductible. Depending on your risk profile, you will at least have landlord’s insurance, which covers damages caused by tenants, water damage, loss caused by theft or burglary and loss of rental income (though the Coronavirus pandemic has seen a number of policies withdraw this as a cover option, so check those product disclosure statements).
Offering your property for rent involves some deductible costs. These include money you spend advertising the property, agent’s fees, ongoing property management fees and administrative costs.
Heads up! It’s a good idea to run these claims by an accountant if you’re unsure, as some of the rules in this space have changed recently. One example is that you may no longer claim the cost of travel to and from your property for inspections. This is especially significant if your investment is interstate. Gone are the days of spending a week on the Gold Coast, swinging by your property on the way to the airport and claiming the expenses on tax!
Repairs and maintenance
Money spent on repair and maintenance work can be claimed, but not money spent on improving the property, so it’s important to know the difference:
Repairs– Work carried out that restores the affected part of the property to its original state.
Maintenance- Work that prevents or fixes deterioration, such as pest control, plumbing, gardening, etc.
Improvements- Work that alters the original state of the property, often to increase value. So if you go and add a level to your house, the big bucks you spend are gone.
While the other deductions on this list are expenses that occur in the taxable financial year, depreciation covers the long term decline in the property’s assets, which are either part of the building’s structure (external walls, fittings), or what is inside the building (appliances, curtains, carpets, etc).
Depreciation rules have changed for properties purchased after May 9, 2017 and there are limitations on what can be claimed. Depreciation is a complex field, which may be why the ATO requires you engage a professional quantity surveyor to help.
Quantity surveyors undertake an inspection and provide you with a depreciation schedule outlining all available deductions. This schedule can be used year after year. Most quantity surveyors guarantee that deductions found will more than cover their fees, which are tax deductible anyway.
Unless you are a lawyer, accountant, or some other kind of financial genius with an insatiable appetite for complex numbers and sums, you could do worse than enlist an expert to prepare your tax return for you. Government offerings like Etax make lodging your own return easier than ever before, but some might say they make it easy because they know they’ll get to keep more of your money if you do it yourself!
An accountant, like One Path Accountants, will prepare and lodge your tax return for you in Australia for a fee ranging from $75 up to a few hundred bucks, depending on who you go to and how complex your finances are.
An expert’s knowledge will mean your initial outlay is well worth it and will often pay for itself many times over in deductions you didn’t know you were eligible for. Check out this great live Facebook video, with Nathan Birch and Ridhwan Hannan, regarding tax returns for property investors.
The fee your accountant charges you may also be fully deductible in your following year’s tax return, so it’s really a win-win.
If you would like to get a head start on your tax return for 2020, please free to get in touch and talk to us about how our team can help.