As tax time approaches, property investors and landlords need to be well-prepared to maximise their deductions and enhance the profitability of their investments.
In this blog we've explored three key areas of deductions for real estate investors: those you can claim immediately, those that are spread over several years, and those you cannot claim. Understanding these categories can save you headaches come tax time and improve your property investment returns.
Immediate Deductions
Certain expenses can be deducted in the same year they are incurred, providing immediate tax relief. These include:
Advertising Costs: Expenses for marketing your property to prospective tenants.
Body Corporate Administrative Fund: Regular fees associated with the management of communal property areas.
Council Rates, Water Charges, Land Tax: Local government charges related to property ownership.
Cleaning, Gardening, and Lawn Mowing: Costs for maintaining the property's appearance.
Pest Control: Expenses for services to manage and prevent pest infestations.
Insurance: Premiums for building, contents, public liability, and rental income.
Interest Expenses: Interest paid on loans to acquire the property.
Pre-paid Expenses: Costs paid in advance for services to be used in the future.
Property Agent's Fees and Commission: Fees paid to property managers for their services.
Repairs and Maintenance: Costs for maintaining the property in good condition.
Legal Expenses: Fees for legal services related to property management (excluding those related to property purchase).
Deductions Over Several Years
Some expenses are spread over multiple years, commonly known as borrowing expenses. These include:
Loan establishment fees
Lender's Mortgage Insurance (LMI)
Title search fees
Costs for preparing and filing mortgage documents
Mortgage broker fees
Fees for valuation required for loan approval
Stamp duty on the mortgage
Non-deductible Expenses
Certain expenses cannot be claimed as borrowing expenses. These include:
The amount you borrow for the property
Loan balances for the property
Repayments of principal against the loan balance
Stamp duty on property title transfer (this is a capital expense)
Legal expenses for property purchase (including solicitors' and conveyancers' fees - considered capital expenses)
Stamp duty on leasehold interests (such as 99-year Crown leases, although not common in Western Australia – this may be claimable as a lease document expense)
Insurance premiums for loan payoff on death/disability/unemployment (this is considered a private expense)
Borrowing expenses for private loan portions (e.g., using loan money to buy a car)
Understanding these distinctions can help you make informed decisions and ensure you are compliant with tax regulations. However, it's important to remember that this information is general in nature and should not replace professional taxation and accounting advice.
For more personalised guidance on buying or selling your investment property, contact Adaptive Settlements. We're here to support you every step of the way in your property investment journey. Disclaimer: The information provided in this blog post is for general informational purposes only and does not constitute professional accounting or tax advice. We strongly recommend that you consult with a qualified accountant or tax advisor to receive personalized advice tailored to your specific circumstances before taking any action based on the content of this post. Source: REIWA.com
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