Straight From The Australian Taxation Office
ATO investment property tax deductions are pretty straight forward. This video explains the basics.
ATO Investment Property Tax Deductions
Your tenants are in and they’re paying you rent and now it’s time to talk about what ATO investment property
tax deductions you can claim.
Let’s talk about expenses you can claim.
Well my holiday house is available for rent so there are expenses I can claim immediately and some that I claim over a number of years. There’s also some I can’t claim at all things like;
- the actual cost of buying and selling the property
- initial repairs I had to make
- those costs of use when working out any profit known as capital gain when I sell the property.
- If I own the property equally with my wife I could only claim half the expenses and I would have to declare half the income.
We’ve talked about what you can’t claim what can you claim?
Immediate deductions like interest council rates and travel costs when I collect the rent and do repairs. There are also three types of expenses that may be claimed over a number of years;
- mortgage set up costs
- loan establishment fees these are usually claims over five years
- you can also claim for wearing out of assets known as depreciation such as
- carpets and appliances
- building costs these are generally claimed at two-and-a-half percent per year
What happens if you only rent your property out for some of the year?
I need to divide up the expenses so in my case with the holiday house I can’t claim a deduction for when I use the house myself.
What if you rent the property out at a reduced rate?
Say to two family or friends in that case what I can claim is usually limited to the amount of rent that I received.
There are specific exemptions for properties managed by Registered Housing Providers click below to find out about those “extra savings”
It sounds complicated but its not really. Let’s look at what happens when Michael stays in his house for one month. This is for his personal use so he can’t claim deductions for this period.
Here’s how we’d work it out. For all the expenses that occur evenly he could simply divide them by 12 to get a monthly rate that includes
- council rates
Some things, like electricity are directly related to the usage period so we look at the bill for that period and work out what he can’t claim.
If you only rent out part of your property then you can only claim expenses that relate to that part as a general guide you work it out on a floor area basis and calculate what percentage of the floor area your tenant uses.
If your property is negatively geared that is the rental income is less than the loan interest and other expenses you may be able to claim the loss against your other income such as salaries and wages.
If you’d like to find out more and watch other videos in the series register below and we will let you know when they’re available.