An Investor’s Guide to Investment Property Tax Deductions

Maintaining investment properties can reduce an investor’s income tax when certain investment related expenses are deducted from his income. Expenses related to the maintenance of rental properties are generally deducted from the investor’s gross income. If allowed as a tax deduction, the requested amounts will reduce the total taxable income and reduce the investor’s tax account. The Australian tax office only allows specific expenses such as tax deductions on real estate investments. These require proper registration and maintenance of records to prove expenses.

Tax deductions on real estate investments

Depreciation: The appliances and furniture used on the premises of the rental property undergo ordinary wear for a period of time. The gradual deterioration reduces the value of these elements which is quantified as depreciation. Depreciation does not involve an actual cash outlay but has the effect of freeing up some liquidity when deducted from the investor’s income.

Financial charges: They refer to costs relating to money borrowed for the purchase of property. The expenses deductible from the loan include mortgage insurance, title search fees, mortgage registration, mortgage stamp duty, and loan establishment fees.

Management fees and commissions: These costs refer to commissions paid to agents responsible for renting the property. It is often expressed as a percentage of the rent.

Insurance: These include property insurance, content, third party liability and owner insurance that insure the investor against default rental. Mortgage insurance is deductible, but not all at once, and is generally amortized over the loan term as part of the loan costs.

Gardening and construction works: Expenses related to the maintenance of the rental property are deductible and include the costs of unloading, the costs of the lawn mower, the cutting of the trees, the replacement garden tools, the fertilizers, the sprays and the replacement systems.

Passive interests: Interest payments made on a loan used to purchase, build, improve or repair property for income purposes are deductible.

repairs: These can be deducted only when the investor can demonstrate that the costs of restoring the property to its previous conditions have been incurred without changing its essential nature. Examples are the costs for repainting, cleaning and other restoration works.

Telephone and travel expenses: These expenses are deductible from income when used for the collection of rents, repairs, inspections and preparation of the property for new tenants.

Other expenses that may be claimed such as tax deductions on real estate investments include rental costs, cleaning, electricity and gas costs, property taxes, legal and management fees, office supplies, pest control and advice, water and sewage.

by Miriam Bronkhorst

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