Overlooked Investment Property Deductions: Maximising Your Tax Benefits
With one in five Australians owning an investment property, it’s crucial for property investors to optimise their tax deductions. Many investors fail to claim key deductions, which can lead to lower returns on their investment. Understanding the most commonly overlooked deductions can make a significant difference in your financial outcome. Let’s explore these deductions and how you can maximise your tax benefits.
Key Investment Property Deductions
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Depreciation on Buildings and Assets
- Capital Works Deduction: If your property was built after a certain date, you can claim deductions for the construction costs over a period of 40 years. This includes walls, flooring, and roofing, making it a valuable deduction for newer properties.
- Plant and Equipment Depreciation: This covers items like appliances, carpets, blinds, and air conditioning systems. Engaging a professional to prepare a depreciation report can help ensure you’re claiming everything you’re entitled to.
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Settlement Adjustments
- When you purchase a property, you may incur costs like council rates, water rates, and body corporate fees. The portion of these costs that applies to the period after you take ownership is tax-deductible.
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Interest on Loans
- Interest on loans used solely for investment purposes is fully deductible, even during vacant periods. This means that as long as your property is available for rent, you can claim this expense.
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Borrowing Expenses
- Loan establishment fees, mortgage registration fees, and lenders mortgage insurance (LMI) can be claimed. If your borrowing costs exceed a certain threshold, these expenses can be spread over five years, providing a more manageable claim.
Common Tax Deduction Misconceptions
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Repairs vs. Capital Improvements: Many investors confuse repairs with capital improvements. Repairs to fix wear and tear are immediately deductible, while improvements or renovations must be depreciated over several years.
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Claiming Deductions for Private Use: If you occupy the property or allow family members to stay, you cannot claim expenses for that period. Mixing personal and investment funds can limit your deductions.
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Interest on Redraw Facilities and Offset Accounts: If you use funds from these accounts for non-investment purposes, the interest may not be fully deductible.
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Travel Expenses for Property Management: As of July, travel expenses for inspecting, maintaining, or collecting rent on an investment property are no longer tax-deductible. Be mindful of this change when planning your finances.
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Special Levies in Strata Properties: Special levies for capital improvements cannot be immediately deducted. However, they may qualify for capital works deductions once the work is completed.
Finding a Tax-Savvy Accountant
Choosing the right accountant is vital for maximising your investment property returns. Look for an accountant who specialises in property investment and capital gains tax. Proactive tax planning can help you optimise deductions and structure your ownership efficiently. Seek transparency in fees and ensure you receive ongoing financial guidance.
By ensuring all eligible deductions are claimed and your finances are structured effectively, you can significantly enhance your property returns.
Whether you’re thinking about buying a home, curious about interest rates, or considering downsizing, understanding the financial landscape is essential. At Acton Wealth, we provide expert tax guidance tailored to property investors. Contact us today for personalised strategies that will help you make the most of your investment property.
