Buying a rental property might seem like a good investment strategy: the tax breaks mean you can make some significant savings on your yearly tax bill and if you play your cards right, you will even make some beneficial gains. That is until things go wrong.
Every year the ATO says it receives many a dodgy claim for improper rental deductions and be warned, a deliberate attempt to over-claim will only land you in hot water with a considerable penalty. So it pays to know what you can and cannot claim come tax time in order to maximise your return the right way.
According to the ATO, nine out 10 returns contain some kind of deduction error, most commonly for claiming deductions when the property wasn’t genuinely available for rent or claiming for loan interest expenses that don’t relate to the property.
So what can you claim? Put simply, any expense related to the management and maintenance of your property – and that includes interest on loans. But you can also claim the cost of advertising for a tenant, body corporate fees and charges, council rates, cleaning and gardening expenses, insurances, and the cost of any repairs.
Did you know you can also claim a deduction for the decline in value of the contents of your rental property? Think carpet, air conditioners, and even the roof. A depreciation schedule will help determine how much you can claim for wear and tear of those depreciating items over a number of years and help maximise your return. Ask us about preparing a schedule for your property before you do your next tax return.
Why, then, do so many people trip up? Often it’s the simple – and avoidable – mistakes people make like over-claiming interest, incorrectly claiming improvements or renovations (capital works) as repairs, or claiming deductions on a rented holiday house that in fact is being used by the owner or family and friends rent-free.
There are some simple steps you can take now to ease the burden come claim time. These include keeping track of all of the rental related income you receive, as well as the expenses you incur for the periods when the property was rented and of course, keeping receipts of all your expenses.
Filing a tax return for a rental property can be complex – and mistakes can be costly. If it all sounds too confusing, that’s because the tax system can seem like a mind-field. Seek advice from a rental property specialist (embed link) who is up-to-date with and understands the important details so you don’t miss out on the benefits of a legitimate tax deduction.
Speak to your trusted accountant to make your tax time experience stress free, minimise your tax bill and maximise your return.