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Common investment property deductions at tax time

May 29, 2023
Samantha Thorne

Investing in property comes with risks, rewards and obligations - one of which is fulfilling your tax obligations at the end of the financial year.

To ensure the profitability of your investment, you should try to claim for as many of the costs of owning your rental property. Who doesn't want more money in their pocket, right?

These deductions are essentially any expenses related to your rental property - though you need to know what the Australian Tax Office (ATO) considers a legitimate expense. Working this out can be tricky - but is essential if you want to maximise the profitability of your investment and keep on the right side of the law.

There are resources out there to help you make sense of the current tax regime. The most obvious of these is the ATO website. You can also pay a professional, like a tax agent or accountant, for their advice. Before you do either of these, however, let’s take a quick overview of what you need to know.

Tax deductions you can claim on an investment property

There are a range of deductions you can claim on your investment property, but your property must be rented or available for rent to qualify for any deductions. This means you must either have tenants or be actively advertising your property for lease to be eligible to claim.

Assuming you tick this box, you should be able to claim for all or many of the following in the financial year they were incurred:

  • Repairs and maintenance to your investment property, though these must ‘make good or remedy defects in, damage to or deterioration of the property’
  • Management and maintenance costs, including body corporate fees, council rates, water charges, cleaning, gardening and pest control fees
  • Insurance cover for your investment property, including building, landlord and contents insurance
  • Interest on loans or borrowing expenses
  • Legal expenses, but only for: evicting a non-paying tenant, expenses incurred in taking court action for loss of rental income, defending a damages claim regarding injuries suffered by a third party on your rental property
  • Advertising for tenants and property management fees
  • Your accountants or tax advisers fees

Other types of expenses need to be claimed over several years.

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Depreciable property items for residential properties - what are they?

There are actually a few of these on the list. The ATO lists a number of depreciable property items for residential rental properties. These range from bins to garden sheds and smoke alarms. 

What is considered ‘residential rental property items’ are things that are beyond the home's foundations or bricks and mortar, and that are generally replaced in a short time period. 

For example, a new kitchen is considered a part of the premises but its appliances are considered as depreciable property items, so a portion of the kitchen can theoretically be claimed as depreciation each year.

Other expenses that may be claimable

Other expenses - such as any major renovations - may be classed as capital improvements by the ATO, and can usually be claimed as capital works deductions. This is worked out on a sliding scale, based on the age of your property - so it can often be complicated to calculate.

Another tax deduction to look into is travel expenses related to your investment property. You need to be sure to read the fine print to make sure you are actually entitled to claim. It’s recommended to use an accountant when it comes to understanding the nitty gritty of what you’re eligible for, as the requirements can be quite confusing. You can read more about travel expenses for investment properties on the ATO website. 

Because this is a fairly complex area of tax law, you are likely to need to consult the ATO guide for depreciating assets, and/or get advice from a tax professional.

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Tax deductions you can’t claim on an investment property

You also need to know what you can’t claim on your investment property. These include stamp duty, legal expenses and insurance premiums that benefit you personally.

If for example, you rent your investment property out for part of the year and live in for the rest of the time, you cannot claim interest paid on the mortgage for the whole year. As you can see the law does change - so we strongly encourage you to get advice on what applies when you submit your tax return.

Getting help and tax advice

Unless you are clear on all aspects of tax law and how it applies to an investment property, we highly recommend getting professional tax advice. This could either be at the outset or on an ongoing basis.

Working with an accountant or tax professional will help you understand the law and how it applies to you.

When doing your taxes, be sure to always keep in mind that tax laws do change, sometimes every year - so seeking professional advice will help you claim everything you are entitled to. For more information, the ATO has a ton of online resources to help you understand your tax status.

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Disclaimer: Doorsteps Finance Pty Ltd ACN 648 541 879 (credit representative no.531036) is authorised under Doorsteps Solutions Pty Ltd ACN 654 334 246, Australian Credit Licence 537369. Any credit application made through Doorsteps Finance Pty Ltd is subject to approval, terms and conditions, fees and charges.

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