TIS the season to be smiling for many of Australia’s two million-plus real estate investors.
Christmas comes in July (or August) for property investors because many have a big tax refund heading their way soon, or at least some big tax deductions to offset their other income.
The latest Australian Taxation Office data shows that property investors claim average interest deductions of $12,800 a year and other rental property deductions of about $11,000 a year.
Deductions outweigh investors’ average rental income of about $19,700 a year, although for many investors with bigger loans and newer properties, the gap is much wider, delivering thousands of dollars annually in negative gearing tax benefits.
Property investors have been stung by the Federal Government’s recent decision to ban travel deductions related to rental properties, and to limit depreciation deductions to new items bought by investors.
However, a bigger financial hit is often self-inflicted. Accounting experts say many landlords fail to make the most of deductions available to them, so are giving away their money to the ATO. media_camera It’s a season of huge smiles for real estate investors waiting for a welcome tax refund.
Whether you’re a current investor or a would-be investor, it’s wise to understand the tax deductions that can put a big smile on your face.
CAPITAL WORKS DEDUCTIONS
The ATO lets investors claim 2.5 per cent a year of the construction cost of rental properties built after 1985, but its data shows that fewer than half of all investors claim this. That means they’ve all got very old properties, or they forget a deduction that can hand them thousands without draining a cent from their pocket. Renovations such as new kitchens and bathrooms can be deducted this way.
Writing down the value of things such as carpets and curtains has delivered investors breaks for decades. Now these depreciation deductions are only allowed on items or homes bought new by investors, but there’s still a potential windfall for those who plan.
BMT Tax Depreciation managing director Bradley Beer says its research has found that up to three quarters of investors don’t maximise their depreciation claims. And many don’t realise that they can back-claim for up to two years if they have previously forgotten depreciation deductions. media_camera Santa may have a big surprise for property investors who take time to check their tax deductions.
Half a million real estate investors don’t claim interest deductions, the ATO data shows. While many own their rental properties outright, others forget a potentially large tax deduction. However, interest can only be claimed if the property is available for rent, so holiday homes for personal use are off limits.
REPAIRS AND MAINTENANCE
While the government is shutting the door on some depreciation deductions, it will still let you claim for the costs of repairs and maintenance. The ATO has strict rules about what’s a repair and what’s an improvement, which must be written down over several years, so check if you’re unsure.
LITTLE COSTS ADD UP
Pest control, land tax, council rates, insurance, property management fees and even stationery are extra deductions than when combined can deliver investors an early Christmas present.
The ATO Rental Properties 2017 guide is available online for free, and its online lodgement system myTax prompts you with claims categories to help you not miss anything. If you use a tax agent, make sure they are across real estate investment expenses.