Investing in property has long been a popular way for Australians to build wealth. As a long-term investment, it offers several benefits including a number of potential tax advantages that can result from investing in a well-managed property. Let’s take a closer look at these tax advantages.
Many of the expenses that relate to your residential investment property can be claimed as tax deductions. However, these can only be claimed for the period your property was rented or available for rent.
If you take out a mortgage to buy a residential investment property, you may be able to offset interest charged on the loan against your rental income for tax purposes.
Other expenses for which you may be entitled to claim an immediate deduction include:
- Advertising for tenants
- Agent fees and commissions
- Bank charges
- Body corporate fees and charges
- Cleaning and gardening expenses
- Council rates, land tax and strata fees
- Building and landlord insurance
- Legal expenses
- Repairs and maintenance costs
- Water charges
- Depreciation of fixtures and fittings
If you are unsure about which rental expenses are tax deductible and eligible to claim, it’s best to seek advice from an experienced financial planner or a tax accountant. You can also visit the ATO website for more information.
When the income you generate from your investment property is less than the cost of owning and managing it, this is called negative gearing. What that means is that the rental income you receive is less than the expenses you incur in relation to the property, so the overall tax result is a net rental loss.
At tax time, you may be able to use your investment loss to offset other income you earn – such as salary, wages or business income – to reduce your tax. You will need to show the total net rental property loss at label IT6 on your tax return.
You may also be able to claim depreciation for wear and tear of fixtures and fittings in your rental property. This means the cost of the item is written-off over a set number of years or the “effective life” of the asset. The Australian Taxation Office (ATO) sets out a comprehensive guide regarding what it considers to be appropriate periods of time for a wide range of items so be sure to check their website or seek advice from a tax agent if you are unsure.
Talk to us about your investment
If you're looking to buy an investment property, start with a clear plan and strategy. Get advice from your accountant or mortgage broker to take advantage of these tax benefits.
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