Property Perks: 5 Tax Deductions Property Owners Should Know About
Owning property comes with plenty of responsibilities, but it also has its advantages. One often-overlooked perk of property ownership is the tax breaks it can offer. Depending on your situation, you may be eligible to deduct a variety of property-related expenses from your taxable income, lowering your overall tax bill.
Disclaimer: this article does not constitute tax advice, but aims to raise topics that are worth raising with a qualified tax expert.
To help you get a feel for what you can and can’t claim we asked the best tax accountant in Australia about the key tax deductions property owners should be aware of. Of course, it’s vital to do your own research and consult a tax professional to ensure you’re getting your taxes right. However, familiarising yourself with these deductions will help you feel more confident when tax season rolls around.
1. Mortgage Interest Deduction
If you’ve taken out a mortgage to finance your property, the interest you pay on that loan is generally deductible from your taxable income. This can significantly reduce your tax burden, especially in the early years of your mortgage, when the interest portion of your payment is higher.
That being said, there are limits on the amount you can deduct, so consult with a tax advisor to ensure you’re claiming the deduction accurately.
2. Rates on a Rental Property
Rates are charges levied by your local council to cover services like waste collection, road maintenance, and public amenities. While rates themselves aren’t deductible, they can be included as part of your deductible rental expenses if you own an investment property. This means you can reduce your taxable rental income, potentially lowering your overall tax liability.
3. Maintenance and Repair Costs
Not all repairs are created equal when it comes to tax deductions. Routine maintenance costs, like mowing the lawn or fixing a leaky faucet, are generally not deductible. However, if you make significant improvements to your property that extend its lifespan or increase its value, those costs can be deducted from your taxes.
Examples of deductible improvements include replacing a roof, adding a new deck, or renovating your kitchen. The key distinction is that repairs maintain the property’s condition, while improvements enhance it. Once again, it’s wise to consult with a tax professional to determine if a particular repair qualifies as a deductible improvement.
4. Capital Works Allowance
The capital works allowance acknowledges the decline in value of certain capital improvements made to an investment property. This allowance lets you deduct a portion of the cost of these improvements from your rental income over a set number of years, typically depending on the type of improvement.
Remember, depreciation itself doesn’t apply to residential properties in Australia. However, the capital works allowance provides a significant benefit for those with investment properties. While it doesn’t directly put cash in your hand, it reduces your taxable rental income, potentially lowering your tax bill.
5. Rental Property Expenses
If you’re renting out your property, you may also be able to claim the fees you pay to a property management company to handle tasks like finding tenants and managing repairs are fully deductible. Similarly, you can claim the cost of advertising your rental property to find new tenants. This includes online listings, newspaper ads, and even signage outside the property.
Legal and accounting fees related to managing your investment property can usually be claimed as deductions. While general travel isn’t deductible, travel expenses incurred for inspecting or maintaining your investment property can be claimed, but only if they involve overnight stays.
Owning property can be a rewarding experience, and the tax benefits shouldn’t be overlooked. By understanding and claiming the deductions you’re eligible for, you can make property ownership an even more financially sound decision.
