Property investors can access a wide range of tax deductions and items subject to depreciation for their rental property yet many miss out on unknown tax breaks, foregoing an average of $20,000 a year on a $1 million house.
Here are five ways to maximise your tax deductions while complying with the tax office:
- Use a quantity surveyor
Registered quantity surveyors can establish the value of purchased items and building construction costs by preparing depreciation schedules to maximise an investor’s claim.
Items as diverse as kitchen equipment, bathroom fittings, outdoor furniture, air conditioning and swimming pools are all legitimate claims. A quantity surveyor will ensure valuations of the items in the building are at market value, avoiding the need to explain any valuations that are higher than expected to the ATO.
The cost of using a quantity surveyor is also tax deductible.
- Apportion expenses
It is common for investors to bundle a mix of properties under one single loan, i.e. the family home and a rental property may be funded by the same mortgage. It is important to structure the loan to easily identify the portion of the loan that is related to the rental property, so you can work out the proportion of interest from the loan that can be claimed as an expense.
- Claim travel expenses
Travel to your rental property for management purposes can be claimed as an expense. If you combine your property inspection with a holiday, the tax office will require you to apportion the expenses between non-deductible private expenses and the costs that can be claimed.
- Immediate write-offs
An immediate write-off applies to items worth less than $300 and can be claimed in the current income year. Items such as garden gnomes, kitchen cutlery and ironing boards, freestanding and irons are easily forgotten and all can be written off in the first year.
- Depreciation
Construction costs can generally be depreciated at 2.5 per cent each year over 40 years for residential properties built after July 1985. This entitlement passes from one owner to the next whenever the property is sold. A quantity surveyor can provide an estimate if information is not available.
Many high value household items are now deducted using the “diminishing value method”, which means the most depreciation happens in the first few years. For example, ducted heating worth $4941 would have a first-year deduction of $493, rising to $2022 over the first five years.
