A real estate expert with with a property portfolio worth $15million has offered his advice for home investors to save big this tax time.
Lloyd Edge from Aus Property Professionals said there are very generous tax deductions for property investors and it’s important to be equipped with the right information and tools to bring in the savings this June 30.
‘The ATO reports that around eight per cent of Australians own an investment property, and it treats those investments like businesses,’ the Sydney property guru said.
‘It’s important that property investors do their research and get their finances in order ahead of tax time, to avoid any potential pitfalls.’ he said.
With the ATO announcing that this tax season they will be cracking down property investor this financial year, Mr Edge revealed his top five insights for this tax time.
Lloyd Edge (pictured) from Aus Property Professionals has shared his top five tips to save property investors big this tax time
1. KEEP RECORDS OF EVERYTHING
If you invest in a rental property, you’ll need to keep records right from the start.
You’ll need these records to calculate expenses that can be claimed as deductions, and to ensure you declare all rental income in your tax return.
If you’re claiming expenses related to items you’ve purchased for the property, you’ll need receipts for those.
Your tax accountant should be across all the finer details.
Your property manager also plays an important role at tax time and should have provided you with all the relevant documents for your property.
2. COMPLETE PROPERTY MAINTENANCE BEFORE THE EOFY
Any necessary maintenance work or repairs you carry out before the end of the fiscal year are expenses you can claim sooner.
If you miss the 30 June EOFY deadline, you’ll have to wait another 12 months to claim these costs.
There are very generous tax deductions for property investors and it’s important to be equipped with the right information and tools to bring in the savings this June 30
3. DECLARE ALL YOUR RENTAL INCOME
Property investors need to declare all the income generated from their property in the financial year.
This includes not just rental income, but also any rental bond money you are entitled to retain—for example, when a tenant defaults on rent or you incur maintenance costs, and receive insurance pay-outs as a result.
4. WORK OUT EXACTLY WHAT YOU CAN AND CAN’T CLAIM
Expenses property investors may be able to claim at tax time
Home loan interest – Any interest you pay on top of your investment mortgage is tax deductible, resulting in significant tax savings. You can also claim associated fees for items like home loan maintenance and offset account fees.
negative gearing – When an investor’s mortgage repayments and rental expenses outweigh their rental income, these short-term losses are usually tax deductible.
Advertising – If you spent money on marketing your rental property to find suitable tenants, you can claim it as a deductible. This includes money spent on website listings, print advertising, brochures, and photography fees
Repairs and maintenance – It is important not to confuse repairs and maintenance with ‘property improvements.’ Repairs restore damaged items to their original condition, whereas property improvements enhance a property’s value and are therefore treated differently by the ATO.
Not claiming enough or the right expenses can cost property owners hundreds or even thousands of dollars on their tax returns and hinder their journey towards financial freedom.
Depending on your individual circumstances, some of the expenses you may be able to claim at tax time include home loan interest, negative gearing, advertising and repairs and maintenance.
Further deductions you may be able to claim include depreciating assets, property management and agent fees, insurance (including building, contents, public liability, and income protection insurance), strata fees, council rates, water bills, land tax, certain legal fees, cleaning, gardening and lawn mowing, gas and electricity, pest control, stationary, travel expenses, and Lenders Mortgage Insurance (LMI).
Also, it is important to note that there are some items you can claim in the financial year, and others are capital expenses (expenses you incur when purchasing or selling an investment property).
Capital expenses, including conveyancing costs, valuation fees and stamp duty, can help you reduce the amount of Capital Gains Tax you pay when you sell your property.
5. UNDERSTAND HOW DEPRECIATION CAN WORK FOR YOU
A depreciation schedule is a report that outlines the decline in value of certain assets within a property, such as carpets, appliances, and equipment.
Appoint a qualified quantity surveyor to produce a depreciation schedule for each property you buy.
You can claim depreciation over a period of up to 40 years.
As your portfolio grows, make sure you are continuously getting those reports- especially for duplexes, as you can get significant depreciation since there are two of everything.
Although it is important to keep taxes in mind when buying property, you must also ensure that you are investing in property for the right reasons.
‘I don’t advocate buying an investment property or building a property just because you want to claim depreciation. Tax deductions are one positive outcome, not an investment strategy or reason to invest,” Mr Edge said.
‘But if you’re leaving money on the table, you’re disadvantaging yourself. You can get better returns on newer properties, which typically need less maintenance. It’s important to think about that when investing.’