If you own a rental property or are considering purchasing an investment property, it is important to be aware of the tax deductions you can claim. Claiming all of the legitimate deductions on your investment property can save you a lot of money. On the other hand accidently claiming illegitimate deductions can cost you a lot of time and energy, potentially even leading to an investigation by the ATO.
There are some immediate deductions that you can make on a rental property, for example, advertising fees, agent costs, repairs and administrative expenses. Legal fees that are directly related to renting a property, for example those associated with debt recovery, may be claimed. However, you may not claim legal costs incurred at other times, for example the solicitor’s fees when you purchased an investment property.
There are also long term costs associated with investment properties that you can claim as deductions. These include borrowing costs, depreciation on equipment and deductions on structural improvements.
Many costs associated with the loan you have taken out on an investment property are legitimate deductions, but interest on the loan is not. Examples of legitimate costs include mortgage registration, stamp duty on mortgage and loan application fees. These deductions are applicable to loans of five years and under (for longer loans the deductible period is limited to five years).
As the value of the equipment with a limited life, for example carpet, depreciates you may claim this as a tax deduction. The ATO website has a list of the depreciation rates on different moveable household items. The entire cost of items under $300 may be included in your depreciation claim.
If you have spent money on an extension, structural improvement or renovation for your rental property then this cost can be claimed as a long-term deduction (usually 2.5% p.a. over 40 years). This does not cover work done immediately after purchase, and you can only claim this for periods that the property has actually been rented out.