The correct way to claim your rental property expenses

rental property expenses

The property market is surging as people look to place their financial faith in real estate once more. While the enthusiasm of property investors increases, however, so too does the amount of deductions claimed.

A big part of owning an investment property is understanding which expenses can be claimed and how to go about claiming in the right way. Investment property owners have found themselves firmly in the crosshairs of the tax authorities for exploiting loopholes or altering figures in recent years. The ATO is aiming to crack down on property investors after registering over 100,000 wrongful claims from the previous financial year.

While investors should be aware of any possible advantage they can give themselves, it is important to do so legitimately or else risk incurring the wrath of the tax office.

The most recent tax data from the ATO indicates close to $39 billion was claimed by Australian property owners in 2010-11. This represented a significant increase on the previous year.

The figures suggest that investors are looking to capitalise on negative gearing, thus intentionally reducing their taxable income. While this in itself is not a problem, landlords are also trying to eke out every last inch of value by claiming additional deductions.

To help clear up those pesky grey areas, here is a quick summary of the things you may or may not claim for when tax time rolls around again.

What you CAN claim for

Immediate deductions that you can claim for, as specified by the ATO, include any interest accrued on loans for the purpose of:

  • Buying rental property.
  • Buying land on which to build a rental property.
  • Renovating or upgrading your property.
  • Depreciating assets bought for the property (fridge, air-conditioning, carpet).

What you CANNOT claim for

  • Charges incurred by tenants (water, electricity, gas).
  • Interest on parts of your loan not linked to your property such as cars or appliances for your place of residence.
  • Costs related to buying and selling your property.

Similarly, no expenses can be claimed during times when the owner is living in the property or when it is unavailable to rent. This could be due to renovations or if the property acts as a holiday home that is only rented for part of the year.

If you sell a rental property at any given time, you will need to factor in any capital gain or loss into your next tax return, provided the house was purchased or upgraded after 20 September 1985.

For more information and expert advice on property investment, management and renting, contact K.G. Hurst today.

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