Everyone loves a tax deduction. Some people love them so much they’ll spend a dollar needlessly because it’s a tax deduction and the tax man will give them 32 cents back! But that’s a topic for another day.
However for rental property owners, there are many possible deductions and it is difficult to make sure you have everything covered. If you’d like a quick checklist, go to http://bit.ly/1cldVuD.
Expenses you cannot claim - As a general rule, you can only claim expenses incurred in earning income. So, for example, your expenses in finding the rental property or the legal expenses of acquiring the property are not a deduction for income tax purposes. Some of these expenses may form part of the capital cost of the property and will be part of the capital gain calculation when you eventually sell the property. It is important that you keep all records relating to these expenses. Having copies stored with your accountant, in your data vault in the cloud as well as paper records in your personal files will often pay dividends eventually.
Expenses you claim over time – These tend to be a diverse group of claims and the tax rules vary considerably. Here you need to look for assets that are not part of the actual structure such as dishwashers, carpets and air conditioners. These assets are depreciated over a few years so you claim a portion of the cost each year until you have claimed the total expense.
For newer properties, you may be able to claim a portion of the capital cost of building the property. It is best to buy a quantity surveyor’s report to make sure you make the correct claims here.
Also included in this category are loan application fees that are usually claimed over 5 years.
Expenses you can claim this year – Most investors understand these expenses as they tend to be obvious, simple to quantify and constant from year to year. Advertising, insurance, interest, rates, repairs, travel are all included here. The cost of the quantity surveyor’s report is also claimable in full.
You need to obtain advice about repair claims as there are a few tricky rules applicable to these expenses. Remember, if you are claiming any cyclone repairs, you need to reduce your claim by the amount received from your insurance company.
Maximising the deductions you claim is an important part of your wealth management plan and you shouldn’t leave any part of that plan to chance. Make sure you seek professional advice and plan now to maximise all the tax deductions available to you as a property owner.