Top 5 tax deductions claimed by property investors

Top 5 tax deductions claimed by property investors

Make sure you are maximising the tax deductions for your investment property this financial year.  Bigger tax deductions means less tax payable to the ATO, and a much needed tax return for many investors.

Here we look at the 5 biggest tax deductions claimed by landlords each year.

Include these in your tax return where they are applicable to you, and you are on your way to maximising your cash returns.

1 – Interest and fees on your investment loan

If you took out a bank loan for the purchase of your rental property, you are entitled to claim a deduction for the interest charged on that loan.

This means that if you paid $15,000 interest for the financial year and bank fees of $150 during the same time period, then you can claim that full $15,150 as a tax deduction.

If your property was rented out for only part of the year, then your accountant can make a pro-rata claim for the period that it was leased.

2 – Capital Allowances and Depreciation (Division 43 and Division 40)

These tax deductions are for the general wear and tear and ageing of your property over time.

Together, these deductions are some of the biggest tax deductions claimable by investors, and are also the most often missed.

Speak with a quantity surveyor to find out what deductions you could be claiming on your property because results vary depending on the type of property, when it was bought, how old it is, how long you’ve owned it, and any improvements made to the property.

A quantity surveyor will consider all of this data and more, and complete a tax depreciation schedule for you.  This tax depreciation schedule tells you the total amount you can claim every year.  Visit our dedicated page to learn more about depreciation schedules.

case study for residential investment property

3 – Property advertising and management fees

Any fees that you have incurred while attempting to find a tenant for your property (online/print/signage etc) can be claimed against the income generated by that property.

Likewise, any fees, payments or commissions paid to your agent to manage your property during this time can also be claimed.

4 – Insurances

One of the most important expenses you will have will be the cost of your insurance premiums and this too can be claimed against your rental property.

Should you need to claim part of this expense due to a partial rental year or multiple properties insured together – your insurance provider can help with a breakdown.

5 – Repairs and property maintenance

Repairs and maintenance are the works that you complete in order to remedy a defect or to prevent and/or fix deterioration.

These repairs and maintenance works can be claimed in the current year as a deduction and include repainting a room, mending fence palings, regular maintenance of a swimming pool filter or having an electrician fix a broken fan.

Keep in mind that any works completed to improve the property beyond its original condition at purchase are likely to be considered capital improvements and will be claimable under number 2.

To learn more about the difference between repairs and maintenance and capital improvements check out our blog articles.

To make sure you don’t miss these 5 (or any other) deductions that you may be entitled to, download our easy to use and FREE Residential Property Tax Deduction Checklist!

Important Note: tax deductions, eligibilities and results will be different depending on your circumstances and we recommend you seek the advice of your accountant to ensure you are claiming your tax deductions correctly, and in accordance with your personal circumstances.


What tax deductions can I claim on an investment property?

Below are just some tax deductions that you are entitled to claim on an investment property:

1.   Interest and fees on your investment loan: You can deduct
the interest charged on the loan used to purchase the property, as well as any bank fees associated with the loan.

2.   Capital Allowances and Depreciation (Division 43 and Division 40): These deductions are for the wear and tear and aging of your
property over time. They can be significant but often go unclaimed.

3.   Property advertising and management fees: Fees incurred
while trying to find tenants for your property, as well as fees paid to
property management agents, can be claimed against the property’s income.

4.   Insurances: The cost of insurance premiums for your rental property can also be claimed as a deduction.

5.   Repairs and property maintenance: Costs associated with repairing and
maintaining the property, such as repainting, fixing fences, or regular
maintenance of equipment, are deductible.

Remember, the eligibility and amount of these deductions can vary depending on your specific circumstances, so it’s advisable to consult with your accountant to ensure you’re claiming them correctly.

How do you maximise deductions on an investment property?

To maximise deductions on an investment property, consider the following steps:

1.   Keep detailed records: Maintain thorough records of all
expenses related to your investment property, including receipts and invoices.

2.   Claim all eligible expenses: Ensure you claim all eligible
expenses, including those related to interest, depreciation, advertising,
management, insurance, and maintenance.

3.   Engage a quantity surveyor: Consider engaging a quantity surveyor
who can assess your property and provide a tax depreciation schedule, helping you identify and claim depreciation deductions accurately.

4.   Differentiate between repairs and improvements: Understand the
difference between repairs and capital improvements, as the latter may be
claimed differently.

5.   Seek professional advice: Consult with a tax professional or accountant
who specialises in property investments to ensure you are maximising your
deductions within the appropriate Australian Tax Legislation.

What are the tax benefits of investment property?

Investment properties offer several tax benefits, including:

1.   Tax deductions: As mentioned earlier, you can claim various deductions related to the expenses associated with owning and maintaining an investment property, reducing your taxable income.

2.   Negative gearing: If your property expenses exceed the rental income, you may have a negatively geared property, which can lead to further tax benefits as you can offset the losses against other income.

3.   Capital gains tax (CGT) concessions: When you sell the property, you may be eligible for CGT discounts or exemptions depending on the duration of ownership and other factors.

4.   Depreciation benefits: Claiming depreciation on the property
and its fixtures can result in significant tax savings over time.

What is the capital works deduction for investment property?

The capital works deduction for investment property refers to tax deductions available for the decline in value of the building’s structure and fixed assets over time.

This includes deductions for the construction cost of the building, as well as any structural improvements or renovations made to the property.

The deductions are typically claimed over a period of up to 40 years, depending on when the property was constructed.

To claim capital works deductions, you need to engage a quantity surveyor who can assess the construction costs and prepare a depreciation schedule, allowing you to claim these deductions accurately on your tax return.

Keep in mind that capital works deductions are separate from deductions related to repairs and maintenance, which can be claimed in the current year.

Related articles:

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