Rental property tax deductions. What you can and cannot claim.

What you can’t claim

Expenses you cannot claim include:

  • Those relating to your personal use of the rental property
  • Utility bills paid by the tenant
  • Borrowing costs where you have borrowed against the equity in the investment property for private use
  • Costs relating to the purchase or sale of the investment property.

But remember, many of the costs relating to the purchase or sale of the investment property can be included in the cost base. For this reason, it is especially important that you keep detailed records of your spending from the beginning of your investment journey.

Ensure you identify all eligible costs to be included in the cost base as it may both reduce any capital gain or increase any capital loss which can be carried forward indefinitely to apply to future capital gains.

What you can claim

You can claim a wide range of running and management expenses against your investment property’s income, including:

  • Real estate management fees
  • Council and water rates
  • Advertising for tenants
  • Insurance
  • Interest on your investment loan
  • Reasonable travel expenses to inspect your property
  • Depreciation on assets like whitegoods and air conditioners.

In order to make taxation claims, you need to keep official documentation including receipts and bank statements (refer to the Australian Taxation Office website for a complete list of claims or talk to your  Accountant), and an accurate depreciation schedule and capital works schedule.

The depreciation schedule is a record of the property’s assets, outlining how much you claim in depreciation each year. A capital works schedule outlines building and construction costs, the cost of altering a building, the cost of capital improvements to the surrounding property and the amount you can claim each year. According to Drum, the relevant cost can be written off at 2.5 per cent each year over 40 years, and only if the rental property was built after 15 September 1987.

If you do not have building or construction records, an estimate of the value of works undertaken can be obtained from an experienced builder, clerk of works, supervising architect or quantity surveyor. A quantity surveyor can also put together a depreciation schedule. Using a professional such as a quantity surveyor can save you significant money in the long run as they are experienced in accurately valuing assets.



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