Investment property tax deductions: What can I claim?
One of the benefits of investing in property is the tax deductions you can claim. Learn about the investment property tax deductions available to you and find out what you’re entitled to.
Investment property benefits
There are many benefits to building an investment property, from improving your cash flow through rent, to building equity and earning money from capital gains. There are also plenty of ways to take advantage of the tax benefits of investment properties, with plenty of investment property tax deductions available.
We’ll look at immediate deductions, long-term deductions and exclusions to tax deductions on investment properties.
Please note this is a general guide and you should consult a tax specialist for detailed tax information regarding your own property.
Investment property tax deductions
There are two types of tax deductions you can claim on rental property expenses. There are immediate deductions, which can be claimed in the same tax year they’re incurred, and ongoing deductions which can be claimed over a number of years.
According to the ATO, you can claim immediate deductions (same tax year) on the following expenses:
- Advertising for tenants — it’s important to note that this does not include advertising for the sale of the property, only for tenants to live in the property
- Bank and body corporate fees
- Servicing costs, lawn maintenance, gardening and cleaning
- council rates and land tax
- Water, gas and electricity charges
- Insurance — including building insurance, contents insurance and public liability insurance
- Interest on your home loan and mortgage discharge expenses
- Lease document expenses including stamp duty, preparation and registration
- Certain legal expenses
- Pest control
- Quantity surveyor and property agent’s fees
- Temporary accommodation for tenants
- Maintenance and repairs including the cost of obtaining a defective building works report
- Security patrol fees
- Bookkeeping and secretarial fees, postage, stationery and phone calls
- Expenses related to tax
Deductible expenses over a number of years
There are ongoing expenses associated with owning an investment property that can be tax-deductible including borrowing expenses and depreciating assets.
Certain expenses which are directly related to taking out your investment property loan can be claimed as a tax deduction on an ongoing basis including:
- Loan establishment fees
- Mortgage documentation preparation and filing costs
- Mortgage stamp duty and broker fees
- Lender title search fees
- Loan approval valuation fees
- Lenders mortgage instance
Note: if your borrowing expenses are $100 or under in total, they will be deductible in the year that they’re incurred, however, if they’re over $100 the deduction will be spread over a period of five years of the length of the loan, depending which is less. If your total borrowing expenses are more than $100.
Depreciating asset deductions
When you buy a property for the purpose of renting, the ATO treats you as having bought a building and plant items, which are depreciating assets. As your home ages, physical aspects of the property will naturally depreciate, or decrease in value. This depreciation can be claimed as a tax deduction.
Tip: Get help from a quantity surveyor who can document your assets and calculate the depreciation value of your property to help you maximise your tax deductions. Their fees can also be claimed as an immediate deduction.
The price of your investment property is split between building and plant for tax purposes. You can claim deductions based on the decline in depreciating asset’s value for an income year to the extent that the asset was used for a taxable purpose.
- Plant and equipment
Plant and equipment assets are things that can be easily removed from the property and aren’t part of its permanent structure, things such as curtains, carpets, electronics, appliances and hot water systems. Depreciating assets must be new when installed to claim deductions (for example, you can’t put your old second-hand TV into the rental property and claim depreciation on it).
- Capital works
Capital works deductions are based on permitted types of construction expenditure associated with your investment property. These deductions are spread out over years or even decades, for instance in residential rental properties these deductions typically take place over a 25 to 40 year period.
Capital works involve the structure of the property and any items that are considered permanently fixed to the structure, like benches and cupboards, as opposed to things like appliances and furniture. You can claim capital works deductions on things such as:
- Extensions to the building including new rooms, verandahs, garages etc.
- Alterations such as removing or adding internal walls,
- Improvements such as adding a fence or paving a driveway
Exclusions to investment property tax deductions
While there are plenty of expenses related to your rental property which you can claim as tax deductions there are some exceptions. According to the Australia Tax Office, investment property expenses that can’t be claimed as deductions include:
- Any expenses that are incurred through your own personal use of the investment property, as opposed to use by tenants
- Any repayments of the principal loan used to buy the property;
- Legal fees incurred from your conveyancer or solicitor and other fees incurred when buying or selling the property
- stamp duty fees for transferring of property over to your name
- travel expenses associated with inspecting the rental property personally
Can I claim tax deductions on vacant land?
No, as of 1 July 2019 you can’t claim tax deductions on vacant land expenses. If you want to claim tax deductions on your investment property it needs to be leased or rented out to tenants.
When you build a rental property instead of buying an existing property, you’re able to claim the maximum amount of depreciation value.
If you’re looking for a turnkey solution that will get your investment property built and ready to use within a matter of months, talk to us. At BuildFast we specialise in ultra-fast hassle-free investment property construction, offering pre-approved land and home plans ideal for building your property portfolio.