Understand different types of rental expenses and their tax treatment

By Michael Laurence
Monday, 24 June 2013

Property investors should:

• Ensure they don’t overlook any of the many expenses that are immediately deductible in the income year of expenditure. These include interest on property loans, repairs and maintenance, insurance and land tax. (See strategy two for our comprehensive checklist.)

• Claim annual deductions over a number of years for the decline in value of removable depreciating assets. (Such items include stoves, blinds, dishwashers, carpets, hot-water systems and air-conditioners.)

• Claim capital works deductions, spread over a number of years, for certain capital expenditure. Capital works deductions are generally claimed for buildings as well as improvements such as adding a bedroom or remodelling a bathroom. (Investors can write-off 2.5 per cent a year of the construction costs for 40 years if construction began after September 15, 1987.)

• Add eligible capital expenditure to a property’s CGT cost base to reduce the CGT eventually payable. Capital expenditure includes the acquisition and disposal costs of a property – such as purchase cost of the property, conveyancing costs, advertising expenses, agent’s commission and stamp duty – and costs of improvement such as renovations. (All capital works deductions already claimed may reduce the cost base when eventually calculating capital gains upon the disposal of the property.)

• It is also possible to claim deductions over a number of years for certain borrowing expenses incurred involving a property loan. These expenses include loan establishment fees, title search fees, costs of preparing and filing mortgage documents, mortgage broker fees and stamp duty on the mortgage. (However, a borrowing expense of $100 or less can be wholly claimed upfront.)

See our eBook on thetop 24 tax strategiesfor property investors.

Date posted: 2013-06-24 | posted by: mydep

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