An Investor’s Guide to Investment Property Tax Deductions
Investment property maintenance can reduce investor income taxes when certain investment-related expenses are deducted from their income. Expenses related to maintaining the rental property are generally deducted from the investor’s gross income. When allowed as tax deductions, the amounts claimed will reduce the total taxable income and reduce the investor’s tax bill. The Australian Tax Office allows only specific expenses such as investment property tax deductions. These require proper recording and record keeping to justify the expenses.
Investment Property Tax Deductions
Depreciation: Appliances and furniture used on the premises of the rental property experience normal wear and tear over a period of time. The gradual deterioration reduces the value of these elements that is quantified as depreciation. Depreciation does not involve an actual cash expense, but it does have the effect of freeing up some cash when it is deducted from the investor’s income.
Borrowing expenses: These refer to the costs associated with borrowing money used to purchase a property. Deductible loan expenses include mortgage insurance, title search fees, mortgage registration, stamp duty on the mortgage, and loan origination fees.
Commissions and management expenses: These costs correspond to the fees paid to the agents responsible for renting the property. It is often expressed as a percentage of the rental rate.
Sure: These include building, contents, liability, and homeowner’s insurance that insure the investor against the default rent. Mortgage insurance is deductible but not all at once and is generally amortized over the life of the loan as part of the loan expense.
Landscaping and landscaping work: Expenses related to the maintenance of the rental property are deductible and include discharge fees, expenses for lawn mowers, tree trimming, replacement garden tools, fertilizers, sprays, and replacement plants.
Interest expenses: Interest payments made on a loan used to buy, build, improve, or repair property for income purposes are deductible.
Repair: These may only be deducted when the investor can demonstrate that the expenses were incurred to restore the property to its previous condition without changing its essential character. Some examples are the costs of refinishing, cleaning and other restoration work.
Telephone and travel expenses: These expenses are deductible from income when used for rent collection, repairs, inspections, and preparing the property for new tenants.
Other expenses that can be claimed as investment property tax deductions include rental costs, cleaning costs, electric and gas costs, land taxes, legal and administration fees, office supplies, pest control and municipal fees, of water and sewage.