Property Observer recently reported that the Australian Tax Office will write to 110,000 property investors over concerns they may have claimed rental property deductions they were not entitled to claim.
The ATO now has sophisticated data-mining tools that pick up inconsistencies in tax returns compared with previous years.
With around two-thirds of property investors negatively gearing their rental properties, knowing what you can claim is vital.
These are seven allowable rental property deductions:
1. Claim straightaway for interests on loans
Some expenses may be immediately deductible in the income year in which they are incurred. For example, you may be able to claim an immediate deduction for interest on a loan used to purchase a rental property, purchase land to build a rental property, purchase a depreciating asset for the property – such as an air conditioner; or to finance renovations or home improvements, like a deck.
2. Claim straightaway for depreciating assets
Deductions can be claimed in the income year in which they are incurred for the decline in value of some types of depreciating assets in residential rental properties – for example, curtains, blinds, dishwashers, refrigerators, stoves, television sets and hot water systems. However, construction costs are not depreciating assets
3. Claim straightaway for costs to repair and maintain your rental property
You can claim a deduction for the costs that you pay to repair and maintain your rental property. For example, replacing part of the guttering or windows damaged in a storm; replacing part of a fence damaged by a falling tree branch; or repairing an electrical appliance.
4. Claim straightaway for tenancy costs
Tenancy costs such as the preparation of a lease agreement, or costs associated with evicting a tenant are also immediately deductible expenses.
5. Claim deductions over a number of years for assets that are part of the property
You can claim some deductions over a number of years, including the cost of depreciating assets, structural improvements and most borrowing costs. Assets that are part of the property such as stoves, refrigerators, air-conditioning and hot water systems can be claimed over a number of years as a ‘decline in value’ deduction.
6. Claim deductions over a number of years for assets on construction costs
You may also be able to claim over a number of years the cost of building, construction and structural improvements made by you or a previous owner as a capital works deduction, for example adding a room or constructing a retaining wall or fence.
7. Claim deductions over a number of years on stamp duty and other fees
Another example of expenses that need to be claimed over a number of years is borrowing costs such as stamp duty charged on a mortgage, loan establishment fees and title search fees charged by the lender. If these amounts are less than $100 in total they can be deducted immediately. Otherwise, they are generally deductible over five years or over the term of the loan, whichever is less.
This advice is sourced from the ATO. It is of a general nature only and does not constitute financial advice. Investors should seek qualified professional financial and tax advice when completing their tax returns.
This artcile first appeared on Property Observer.