What are the rules about rental expense claims?
The Australian Tax Office offers attractive incentives to a property investor. IF you are an investor, or considering purchasing an investment home, you need to be informed on what rental expenses you can claim at tax time.
What can you claim?
You can claim expenses in the year that you incurred these expenses. For example: advertising for new tenants, Insurance, council rates, pest control, mowing and gardening expenses, accounting fees related to the property and any bank charges related with the property.
Further, depending on the type of property, body corporate fees, depreciation schedules, repairs and maintenance, interest on mortgage and travel expenses. However, due to variables, it is best to check with the ATO, as often there are rules that apply in order for you to claim such items. ( for example travel costs incurred to visit your investment property). Your accountant should be able to advise you further on the specifics.
What you cannot claim:
The ATO states that certain costs associated to buying and selling the property are not tax deductable. For example: expenses that the tenant pays on behalf of the property ie: electricity or water bills or any related expenses incurred by yourself, if / when you use the property yourself and not the tenant.
What about repairs and maintenance?
Certain repair costs and property maintenance may be tax deductable, however be sure the cost is related to a repair and not a revamp! The costs must be directly related to wear and tear associated with the renting out of the property. For example if there is damage due to a broken fence or gate, due to a storm, and needs repair, the cost of repair can be claimed at tax time. However the interpretation of maintenance considered “capital improvement” is often debatable. For example if you revamp the kitchen, or upgrade the stove, or repaint the rooms between tenants, these expenses are not tax deductable. It is best to seek advice from your accountant to make sure you know in advance what repair costs and maintenance items are tax deductable.
What mortgage costs can you claim?
The ATO allows for borrowing expenses to be claimed. These include title search fees, mortgage broker fees, stamp duty, and costs for filing mortgage documents. Ensure you keep a list of all these cost, however your accountant should be asking you for copies of all these to support you tax claim.
When can you claim depreciation costs?
These costs can be claimed over more than once financial year. These include depreciating assets, and capital works deductions. Depreciating assets cover things like carpets, fittings and other items. It is worth your while to obtain a depreciating schedule for your property as there are different ways of making your claim ie: upfront or progressive. Capital works refers to construction on the property, which could be adding a garage or car port. These deductions could be spread over a few years, or upfront. It is best to liaise with your accountant to receive the best advice in this regard.
For further information, visit the ATO website to download information pertainting to rental properties. Click here for more information https://www.ato.gov.au/individuals/income-and-deductions/in-detail/investments,-including-rental-properties/rental-property-expenses/
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