Tax deductions for your investment property
What you can claim on investment properties
When you invest in real estate, you can advantage of a variety of tax deductions. It’s one of the reasons why investment properties have become so popular among novice and experienced investors alike. But of course, there are guidelines and eligibility requirements investors need to follow.
Knowing what you can and cannot claim is vital to ensuring everything is above board. To help you out, here’s a quick overview of what you need to know about investment properties and tax deductions.
Investment property tax deductions: What to claim?
You can only claim expenses used for investment purposes. This means personal-use properties are not included. According to the Australian Tax Office (ATO), you could claim an immediate deduction against your current year’s income for expenses related to the management and maintenance of the investment property.
It’s advisable to consult an accountant when figuring out tax-deductible claims on your investment property.
Tax deductions claimable this year
You can claim the following tax deductions now or the soonest tax filing date:
Advertising costs
If you own a rental property, using advertising platforms to find tenants could be considered a tax-deductible expense. Marketing includes online, print, brochures, signs, and other advertising expenses that can be claimed as a tax deduction.
Council rates
Council rates can only be claimed while the property is occupied by a tenant. If your rental property was only tenanted for 250 days out of the year, you can only claim council rates for those 250 days. The council rates can be deducted in the same year the rates were paid.
Land tax
If the dwelling on your investment property is rented out, you can claim land tax as a deduction. Some state governments have offered land tax discounts for landlords who provided rent relief for their tenants impacted by COVID.
Strata fees
If your investment property is on a strata title (apartments and townhouses) you can claim the cost of body corporate fees as a tax deduction.
Repairs
Repairs and other types of maintenance can be claimed as a tax deduction in the same income year if the repairs are a result of wear and tear like fixing a broken appliance or repairing storm or flood damage.
Pest control
Professional pest control costs are tax deductible, and depending on who paid for them you or your tenant can claim this expense.
Insurance
If you have insurance on your investment property, you can claim the costs of insurance in your tax return. Landlord insurance typically covers tenant-related risks such as damage to the contents and building, or loss of rental income.
Legal expenses
If you need to hire legal professionals for something related to the tenant, such as eviction or an unpaid lease, you can claim this as a tax deduction.
Tax deductions claimable over years
These are tax deductions you can claim on your investment property over several years.
Depreciation
You can claim general wear and tear as depreciation on your tax deduction. There are types of depreciation that you can claim like building depreciation and appliance depreciation. Other assets that can depreciate include timber flooring, carpets, curtains, and furniture.
Capital expenses
Expenses such as capital works, improvements, substantial renovations, and capital allowances can be tax deductible on your investment property. To be eligible for capital expense tax deductions, you must meet certain criteria.
Loan interests and bank fees for loan servicing
You could claim interest accrued on your regular loan repayments as an investment expense. You could also claim any bank fees related to servicing that loan.
Some investors take out interest-only loans to take advantage of the loan interest tax deduction. It allows investors to deduct their full repayments for a short period before their loan reverts to a standard loan with both principal and interest repayments. Also, you can only claim a deposit on the interest portion charged on your investment loan.
You can’t claim repayments made on interest charged if you refinanced part of the mortgage for a private purpose. Even if you’ve used equity from the property as security in the refinanced loan, you’re not allowed to claim interest on that investment property.
Investment property deductions you can’t claim
The things that can't be claimed on an investment property can be boiled down to:
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Any expenses relating to your personal use of the property. You can only claim expenses on parts of the house used for investment purposes.
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Any expenses paid for by the tenants. If you didn’t pay for it, you can’t claim it.
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Borrowing costs where you've borrowed against the equity in the property for personal use
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The principal amount of the loan used to purchase the investment property.
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Costs related to the purchase or sale of the property.
How to claim deductions on your investment property
Making misleading or fraudulent claims on your investment property can lead to big fines, so it's important to get it right. As a rule, you shouldn’t claim tax deductions that you can’t provide proof for. Keep all relevant receipts, invoices and bank statements as well as proof of rental listings and advertisements.
The ATO states rental income and expense records need to be kept for five years. Make sure you keep either physical or digital records and have them on hand when completing your tax return. If in doubt, consult the ATO or a qualified accountant or adviser for help maximising your tax return on your property portfolio.
Important note: Your rental income is also assessable
According to the ATO, rental income is considered assessable income and is therefore taxable. The current marginal tax rates are as follows (the rates do not include the 2% Medicare levy):
| Taxable Income | Tax on This Income |
|---|---|
| 0 – $18,200 | Nil |
| $18,201 – $45,000 | 16c for each $1 over $18,200 |
| $45,001 – $135,000 | $4,288 plus 30c for each $1 over $45,000 |
| $135,001 – $190,000 | $31,288 plus 37c for each $1 over $135,000 |
| $190,001 and over | $51,638 plus 45c for each $1 over $190,000 |
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