April 1, 2023

Tax Depreciation for Investment Property

What We Claim: More than 623,000 Victorians claimed a deduction for rental property expenses in the 2011-2012 financial year, according to Australian Tax Office statistics. There were 564,890 claims for council rates, 539,890 claims for water charges, 476,055 claims for insurance, 474,375 claims for interest on their loans, 443,430 claims for property agent fees, and 437,625 claims for repairs and maintenance. Legal fees, 15, 630, pest control, 19, 575, and cleaning costs, 62, 835, were less frequently claimed. According to Frank Brass, regional director for H&R Block, many property owners were aware of the majority of the things they could claim, but there were some gaps.

Mr. Brass asserts, “The majority of property investors probably were not claiming everything they could be.” “People just give up on trying to keep them because it’s so difficult to know what kind of records you need to keep,” he said. Additionally, they are afraid of making a mistake.” However, there is no need to be. Mr. Brass stated that the tax office is generally understanding if your records, receipts, and invoices are in order and if you prepared them yourself, provided that you have done so to the best of your ability and are not engaging in fraud. Additionally, he mentioned that you could claim a fifth of your borrowing costs for the first five years following your purchase.

The mortgage’s stamp duty and legal costs are covered by this. In the meantime, BMT tax depreciation specialists managing director Bradley Beer estimated that between 70% and 80% of investors were not receiving the maximum return on depreciation claims. Mr. Beer stated, “The average first year of deductions for owning a property is about $10,000, and over ten years, it’s about $7000 per year.” He said that depreciation claims are a way for the tax office to take into account the value of wear and tear on your property’s structure. Even though the property is increasing in value, the building is wearing out,” Mr. Beer stated. You probably need to see a quantity surveyor to get the most out of this, and not only new properties can make claims. “Even if you missed the first five years, there are things in a house that will still be depreciating if you bought it 10 years ago and spent $100,000 on renovations five years ago,” Mr. Beer stated. Additionally, you can claim it as soon as you rent it out, Mr. Beer stated. If you buy a renovated property, the same applies.

What to look out for? According to Mr. Brass, a lot of people were caught out when they redrew against the equity in an investment property for their own use without adjusting the amount they claimed for their interest.

He stated, “You are no longer able to claim the loan’s full interest.” And the failure to allocate the interest has for many years caught people off guard.” Mr. Brass pointed out that people have been duped by couples who buy a house in both of their names but have one of them file tax returns.

He stated, “You must handle the property tax side according to the names on the title.” Additionally, he stated that if you claimed depreciation, those claims would be returned to the government when the property was sold and added to your capital gains tax payment. It is essential for holiday home owners to keep in mind that you can only claim against a property as an investment when it is actually rented out.

The exemption from capital gains tax only applies to your primary residence for the duration of your stay there if you intend to sell it. If you have owned the property for more than a year, you are eligible for the 50% tax reduction.

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