A Guide to Claiming your Rental Property Taxes

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Do you know that you can claim certain tax deductions as an owner of a rental property? It is important to claim as many deductions as you can because your rental income, and your overall financial well-being, will greatly benefit from the tax dollars you save from your investment property.

But before filing that claim, know some essential rules and criteria relating to property taxes.

Firstly, owners can only claim expenses associated with their rental property for the period the property was leased or available for lease. An example of this expense is advertising costs. Secondly, owners can only claim tax deductions on the part of the property that is being rented. In this case, you have to come up with a reasonable basis to divide up the claim. But as a general rule, a floor-area basis is used for apportionment.

Common Rental property Expenses you Can Claim

Interest Expenses

In negative gearing property investment, the largest tax deduction is interest expenses. You can claim tax deductions on the interest you pay on the loan you used to purchase the property, including the money you paid to acquire the property, make repairs and renovations, or spend on tenant-related issues.

These are tax deductible only if the loan was used for income generating purposes. If it was used for both private and income generating purposes, you need to apportion the interest to come up with the tax deductible amount.

Tenancy Costs

These include the monies paid to advertise for tenants, to property managers for procuring tenants on the landlord’s behalf, and any cost related to preparing or modifying the lease agreement. Also tax deductible are landlord insurance premiums, legal costs incurred for evicting a tenant, and travelling expenses related to inspecting the rental property or collecting rent.

Repairs and Maintenance

Landlords can claim a tax deduction on expenses they incurred from restoring an area or feature in the property to its original condition as a result of tenant wear and tear. However, initial repairs, or pre-existing damages in the property, are not tax deductible.

Depreciating Assets

These include carpets, dishwashers, clothes dryers and other stand-alone functional units that are not normally attached to the property that decline in value over time.

Capital Works

These are extensions, structural upgrades or changes and other works done on elements that are attached to and become part of the land and property. Capital works are typically not tax deductible upfront. Generally, construction expenses on capital works can be claimed at 2.5% per annum on a straight-line basis over 40 years.

There are timing conditions attached to construction works deduction. The construction expenses on the property itself can only be claimed if work commenced on or after July 18, 1985. The cost of structural upgrades, extensions and modifications can only be claimed if work began on or after February 27, 1992.

Other Holding Costs

Body corporate fees, cleaning costs, gardening costs, building and contents insurance premiums, rates, security monitoring costs, pest control, property manager’s fees and commissions and other expenses related to owning the property are considered holding costs and are typically deductible upfront.

Other Tax Deductible Property Expenses

These can include:

  • bank charges
  • borrowing expenses
  • council rates
  • land tax
  • phone
  • stationery and postage
  • water charges

Expenses that are not Tax Deductible

Owners cannot claim tax deductions on the following expenses:

  • Costs related to the personal use of the rental property
  • Utility bills such as water or electricity paid by the tenant
  • Borrowing costs associated with borrowing against the equity in the investment property for private use
  • Costs associated with the acquisition or sale of the investment property, including conveyancing and advertising fees and stamp duty

The information provided above is general and is merely a guide.  Conduct further research and seek professional advice from PJS Accountants who will help you make an informed decision for your investment property.