Get Ready For Tax Time With The Ultimate Rental Property Tax Return Checklist
The Tax Season is Fast Approaching! Are You Ready?
So, the good news in the recent Federal Budget, was that the current government isn’t making any changes to negative gearing or capital gains concessions. Thank goodness for their sense on this hotly debated issue.
At The Property Exchange we appreciate that the focus of our Owners is to optimise their tax returns and maximise their income. However, it is important to be aware what, when and how you claim legitimate tax deductions on repairs and maintenance to your investment property. Keep on top of things with this rental property tax return checklist.
Can you claim the cost of repairs before you rent the property out?
Unfortunately, you cannot claim the cost of repairing defects, damage or deterioration that existed when you purchased the property, even if you carried out these repairs to make the property suitable for renting. This is because these expenses relate to the period before the property became an income-producing investment. These would be become a part of the depreciating assets, that we will explain later.
What records do you need to keep?
You need to keep proper records in order to make a claim, even if you use an accountant to prepare your tax return. You must keep records of the rental income you receive and the expenses you pay. As an Owner you must keep these records for five years from the date your tax return is lodged.
The Property Exchange provides an Annual Financial Statement on your property to make this easier for you at tax time, otherwise you can refer to your monthly statements.
What can you claim?
Interest is by far the largest tax deduction in a negative gearing arrangement. Provided your property is available for rent, the interest incurred on money you’ve borrowed for the property is tax-deductible offset by the rental income you receive. For example if your interest repayments are $25,000 and you receive rent of $20,000, the difference of $5,000 is tax deductible. Also the costs of purchasing the property such as stamp duty, settlement agent fees can also be used as a tax deduction.
2. Tenancy costs
The cost of advertising for tenants is tax-deductible, so are letting fees paid to the real estate agency who procure tenants on your behalf. Any expense incurred in relation to preparing or varying the lease with your tenant is also tax-deductible. Check out a more exhaustive tenancy costs claim list if you are unsure.
3. Repairs and maintenance
The cost of restoring something to its original condition due to tenant wear and tear is tax-deductible, provided it is not “initial repairs” – damage that existed when the property was purchased.
4. Depreciating assets
Depreciating assets are stand-alone functional units that are not generally affixed to the building that decease in value over time. Examples include clothes dryers, dishwashers, paint, curtains and carpets. While the cost of buying a depreciating asset is not, in general, tax-deductible upfront, the cost may be depreciated over the effective life of the asset and claimed as a tax deduction over a number of years. The tax office provides suggested depreciation rates for different assets but you are allowed to self-estimate the effective life of a specific asset, as long as you can justify it. Otherwise there are companies that can prepare a depreciation schedule for you and your investment property.
5. Capital works
Capital works expenses are generally not tax-deductible upfront. Unlike depreciating assets, capital works are generally done on things that are affixed to and become part of the land and building, such as an extension, structural alteration or and structural improvement, such as a retaining wall or a sealed driveway.
6. Other holding costs
Holding costs are monies that go into owning a property and include strata levies, cleaning costs, gardening costs, building and contents insurance premiums, rates, security monitoring, pest control, and real estate agent fees. These costs are generally tax-deductible upfront.
Don’t forget to also check out the ATO’s what you can claim list!
Disclaimer: All information given is intended to be general in nature and is provided in good faith and is believed to be accurate and reliable at the time of compilation and does not take into account individual’s circumstances.