Tax Deductions You Can Claim on an Investment Property

A tax accountant counting money saved in deductions

Real estate has always been popular with investors. Investors prefer real estate over other asset classes for various reasons. For starters, real estate is a tangible asset. In addition, renting out your investment property is an excellent way to create a passive income stream. Hence, you’ll often see people exploring real estate as a viable option when looking to invest.

According to research by CoreLogic, there are over 2.03 million individual investors in Australia. Their research states that the average investor owns 1.28 investment properties. As a result, many Australians consider real estate an excellent investment vehicle that will bolster their portfolio.

Naturally, owning an investment property comes with some caveats. For starters, you’ll have to worry about the tax you’ll have to pay to the ATO. If you’ve bought a property purely for investment purposes, you’ll want to lower the tax amount you pay. Otherwise, taxation is going to take up a significant chunk of your profits.

Fortunately, landlords can reduce their annual tax bills in various ways. In some instances, getting these tax deductions can be the difference between having a positive and negative cash flow. We’ll discuss the various tax deductions you can claim on investment property in this blog post.

Tax Deductions You Can Claim on an Investment Property

Before we proceed any further, we must clarify that you – as a landlord – can only claim deductions when your property has tenants living in it. Likewise, you can also file for tax deductions if you‘re actively trying to rent your property. In addition, in most cases, you can only claim a portion of expenses as tax deductions. You’ll also need to demonstrate proof with documentation to get these tax deductions.

Here are some ways you can claim a tax deduction for an investment property. They include:

Rental Advertising Costs

If you’re looking for tenants for your property, you’ll likely need to place advertisements. Whether you place ads in a newspaper or online, you’ll probably have to pay for them. Make sure that you keep a record of all the marketing materials you’ve created for your property. You can claim these advertising expenses as a tax deduction against your income.

Loan Interest

Most investors buy an investment property via financing. They’ll usually go to a bank to receive a loan to help them purchase the property they’re interested in buying. Naturally, you’ll have to pay interest fees on your loans. However, the good news is that you can claim these interest fees as tax deductions. However, you’ll want to note that you can’t claim the repayments you make to the bank as deductions.

Land Tax

Typically, land tax varies by state. However, you can claim the land tax as a deductible as long as you’ve got tenants living in your investment property. It would also serve you well to note that the timing to claim land tax as deductions also varies state-to-state. Therefore, we recommend getting in touch with a tax accountant who can help you.

Building Depreciation

If your building’s structure is ageing, you can also claim a deduction on it. Likewise, you can also get a deduction on any renovations you make to the property.

The ATO enables you to claim deductibles on any property that was constructed after 16th September 1987. You can claim a 2.5 percent annual deduction on these costs for 40 years. In addition, you can also claim tax deductions on any renovations to your property after 27th February 1992.

 An investor calculating tax deductions

Get Help from the Best Accountants in Melbourne

If you’re interested in minimising taxes on your investment property in Australia, we can help you. Our tax and bookkeeping services for small businesses can help you find tax deductibles on your investment property.  Get in touch with us to learn more.

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