How to save thousands on tax with your investment property

As a landlord, it's important to be aware of the rental property tax deductions you're eligible to claim in order to boost cash flow and ensure compliance. The Australian Taxation Office (ATO) found that nine out of ten landlords make mistakes when completing their tax returns in 2022. In this article, LINK Advisors explores the biggest rental property tax deductions available to investors.

How can I claim a tax deduction for fixtures and fittings within my property?

A huge deduction available to landlords is property depreciation. The ATO allows owners of income-producing properties to claim the natural wear and tear that occurs to a property and its assets over time. This includes capital works deductions (Division 43) for the building's structure and assets permanently fixed to the property, and plant and equipment depreciation (Division 40) for assets that are easily removable from the property or mechanical in nature. Depreciation is a non-cash deduction, which means landlords don't have to spend money to claim it. Additionally, depreciation deductions can be claimed even if the property is vacant as long as the property is genuinely available for rent.

Is all repairs and maintenance tax deductible for my rental property?

Along with depreciation, repairs and maintenance on the rental property can result in significant deductions. It's important to note the difference between repairs, maintenance, and capital improvements. Repairs are work completed to fix damage or deterioration of a property (such as restoring an asset to its original condition), while maintenance is the work completed to prevent damage to the property. A capital improvement is when the condition or character of an item is improved beyond its original state.

Can I claim body corporate, land tax, council rates and more?

Landlords are also entitled to claim deductions for costs such as land tax, body corporate fees and council rates relating to their investment property. Property management fees and costs associated with advertising a rental property are also tax deductible. Insurances on income-producing properties, such as building, contents, landlord, or public liability, are also tax deductible.

Are interest and principal payments tax deductible?

One of the biggest deductions landlords can claim is the interest on their investment loan, however, principal payments cannot be claimed as a tax deduction. According to the most recent statistics released by the ATO, this was the largest tax deduction investors claimed in FY2019/20. Other borrowing expenses that are allowable as deductions include loan establishment fees, mortgage broker fees, ongoing loan fees, lenders mortgage insurance (LMI), and the cost of preparing mortgage documents. It's important to note that you can't claim payments made on the loan's principal amount, and any interest repayments deductions must be apportioned if you have used part of the loan for private purposes.

To ensure you’re receiving the biggest tax refund, landlords should contact a specialist quantity surveyor and organise a tax depreciation schedule. Your accountant will help you claim these deductions accurately. To learn more about how depreciation can boost your cash flow, contact the experts at LINK Advisors for guidance.