Taxes can greatly reduce your profit from investment properties, and any serious investor will hire an accountant or a tax specialist to make sure that no overpayments or unnecessary expenditures are made. However, several simple tips can help you increase your income through property tax deductions.
The Australian Taxation Office (ATO) allows you to deduct a number of expenses related to buying and maintaining rental property or any property that provides you with a source of revenue.
Some of the property tax deductions that you may claim on your income taxes are as follows:
Any fees your lender levies against your mortgage or deposit account associated with your property may be deducted from your taxes. These fees are usually charged on a monthly basis, but other fees may also apply.
When you advertise for tenants to fill your unoccupied units, the cost is deductible. Advertisement expenses include listings with real estate agencies, newspaper ads, online ads and marketing through most other media. However, advertising for the purpose of selling your property cannot be deducted. It must be included as part of the cost of the real estate.
New Construction and Structural Improvements:
You can claim new construction and remodelling expenses as tax deductions for capital works, but they must be taken over a period of several years. For new property, the timeframe is 40 years, and you can provide proof of the expense by submitting a quantity surveyor’s report, which will itemise costs into years and by categories.
Building construction costs include several associated services, including the following:
• Architect fees
• Land purchases
• Demolition of existing structures
If actual construction costs are unknown because you acquired the building during the process, you may submit an estimate from a clerk of works, a supervising architect, an experienced builder or another qualified person.
Structural improvements that may be expenses are as follows:
• Parking areas
• Private roadways
• Retaining walls
Local Government Fees:
The city or local governing body may impose fees on homeowners and landlords for municipal services. The fees are most often levied on an annual basis, but many governing councils allow for quarterly payments.
Insurance premiums on policies used to protect your US investment property qualify as tax deductions. Specific coverage that can be expensed includes building damage, liability claims, theft and loss of rent.
General Maintenance and Repairs:
Repairs, which are defined as work to restore the building to its original condition, are tax deductible, and regular maintenance is included in this category. Replacements of an equivalent nature are also deductible unless the part is an improvement over the original part when it was new. If it is an improvement, the expense falls into the category of renovations and extensions, which are considered construction and can only be deducted over several years. The only exception to repair deductions is that the repairs must have been made at least 12 months from the date you purchased the property.
Fees for services that relate to the general upkeep and management of your investment property can be deducted from your taxes. Examples of such fees are as follows:
• Preventative and specific pest control fees
• Fees paid to a property management company
• Commissions paid to real estate agents for finding tenants
• Legal expenses and solicitor’s fees that are incurred from the purchase or sale of investment properties and those incurred from evictions and lease terminations
• Landscaping, gardening and lawn mowing
• Fees for tax preparation, advice and accounting
The interest you pay over the course of the year on your mortgage is deductible, but payments on the principal are not. When your payments include both principal and interest, you must subtract the amount that goes toward the selling price of the property.
If your property is subject to the state’s land tax, then the amount of the land tax may be deducted from your income tax. Land tax only applies to properties above a threshold value, and that value varies in each state.
Depreciation is an expense that many property owners do not consider, but this is a deductible expense. To be able to deduct the decline in value of your property, you must obtain a report from a quantity surveyor. Accountants may not prepare depreciation schedules for investment properties. If you provide appliances and furnishings for the property, those assets may also be depreciated, and the amounts can be deducted.
Office supplies, office utilities and telephone expenses are also deductible.
If you are travelling from interstate to inspect your rental property, then your travel and accommodation expenses may be deductible.
Author: Simon Worthington
Simon is the International Sales and Marketing Manager at Ray White Surfers Paradise, Gold Coast, Queensland, Australia and Ray White USA, Atlanta, Georgia.