Common Rental Property Tax Deductions for Landlords
Property investors can reduce their taxable income and increase their cash flow through various tax deductions related to rental properties. By leveraging these tax deductions, a lot of investors can build a more successful property portfolio and improve prospects for future investment expansion.
With that said, we made a list of some of the most lucrative tax deductions that every property investor should be taking advantage of to save money.
1. Mortgage Interest
You can claim the interest charged on the mortgage of your rental property. However, it is important to note that you cannot claim payments made on the mortgage’s principal amount. This is also the case if you have used part of the loan for personal purposes, which means that any interest deduction must be apportioned accordingly.
2. Insurance Premiums
Having appropriate insurance to protect your property investment is vital. For a rental property, the two most common insurances are landlord insurance and building and contents. These insurance premiums are tax deductible. If you pay your insurance in advance, you can claim it back within the same financial year.
3. Advertising Fees
Advertising and marketing are a must if you want to attract suitable tenants. If you manage these two yourself, note that the associated costs can be tax deductible. However, if you hire a property management agency to handle this process, the advertising and marketing expenses are usually included in their property management fees and cannot be claimed separately.
4. Maintenance and Repairs
Both maintenance and repairs you apply on your rental property are tax deductible. Repairs involve fixing property damage, such as replacing a broken fence or a rusted gutter, which are considered forms of deterioration of a property. On the other hand, maintenance focuses on preventing property damage, such as varnishing a deck.
It is crucial to understand the difference between the two, along with the capital improvements. The latter means enhancing the property value beyond its original state. An example of this includes retiling a bathroom, which would require a different deduction approach.
5. Travel and Transportation Expenses
Due to legislative changes made in 2017, you can only claim travel expenses if you are in the rental property business. To be specific, the following entities are the only eligible ones:
corporate tax entities
superannuation plans that are not a self-managed superannuation fund
public unit trusts
managed investment trusts
unit trusts or partnerships, where all members are entities of a type listed above
6. Body Corporate Fees
If your rental property is part of a strata scheme, body corporate fees are tax deductible. However, if these fees cover maintenance and cleaning for common areas, such as the gym or garden, then those specific costs cannot be claimed separately.
7. Property Management Fees
Using a rental property management service is a common practice in the real estate industry if you want to simplify your investment experience. A property manager will handle things like inspections, leases, advertisements, and disputes. The fees paid for these services are entirely tax deductible, along with any costs incurred while communicating with the property manager.
8. Cleaning Expenses
At times, you may need to arrange for regular cleaning of your rental property as part of the lease agreement, or after a tenant has moved out. These cleaning expenses, whether from hiring professionals or purchasing cleaning supplies, can be claimed as tax deductions. However, it is important to remember that you cannot claim for your own time spent cleaning.
9. Council Rates
Council rates are fully deductible for the duration that your property is available for rent since the Australian Taxation Office (ATO) considers these as ongoing expenses that are incurred while generating rental income. This includes any annual emergency services levies charged by your local council.
10. Gardening and Lawn Mowing
If your property’s lease agreement covers garden and lawn maintenance, those expenses are tax deductible. This applies to both hiring lawn mowing professionals and purchasing gardening supplies.
11. Water Charges
You can claim any water charges you have paid for while renting out your property. While some costs may be covered by tenants, charges such as any sewer or annual service fees remain tax deductible.
12. Pest Control
Pest control expenses are tax deductible if you are responsible for managing pests on the property, as defined in the lease agreement. These pests can include fleas, cockroaches, ants, and mice.
13. Utilities
Utilites are often included in the lease to enhance tenant appeal as well as the property’s rental rate. Having said that, any utility costs you cover, such as electricity and Internet, are tax deductible.
14. Legal and Professional Fees
Only legal fees directly related to rental activities are tax deductible. For instance, if you take legal action due to malicious damage caused by the tenant to the property, you can claim the associated costs. However, costs associated with purchasing the property, such as stamp duty, are considered capital costs and cannot be claimed.
15. Tax Depreciation Schedule and Accounting Fees
Maintaining accurate financial records as well as tracking income and expenses are crucial for property investors. Hiring an accountant to handle this for you is the simplest way to ensure a stress-free experience. On top of that, the fees for hiring one and preparing a tax depreciation schedule are fully deductible within the same year you paid for them.
16. Refinancing Costs
If you refinance your rental property, administrative costs associated with the process are tax deductible. Common fees include loan establishment, early discharge fees, and break fees.
17. Land Tax
Land tax is paid annually on properties, other than your primary residence, that exceed the land tax threshold. You can claim land tax on your rental property as a tax deduction each financial year. The amounts payable, the threshold, and any available exemptions or concessions vary by state and territory, so it’s important to verify what applies to your situation.
18. Property Depreciation
Depreciation is the only non-cash deduction available to property investors.
Property depreciation refers to the natural wear and tear of a building and its assets over time. The ATO permits owners of income-generating properties to claim this as a tax deduction. There are two types: capital works deductions for the building structure and plant and equipment depreciation for removable assets. These deductions can add up significantly, so it’s crucial not to overlook them. Claiming these deductions is essential for maximising the financial performance of your rental property. Failing to take advantage of available deductions can mean missing out on substantial savings.
For tailored guidance on claiming rental property tax deductions, including comprehensive assistance with depreciation, you may consider reaching out to our team. Our expert services ensure you can maximise your claims while staying compliant with tax regulations.
