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Top tax deductions for property investors
For those who want to optimise the tax benefits on their investment properties, not only this new financial year but in the coming years, this is the perfect time to evaluate and plan tax strategies.
As a property investor, you can access many tax incentives and deductions including depreciation costs, agent’s fees, interest payment and property maintenance expenses.
Let’s go through some of these items that you can use in planning your tax strategy for your investment property.
How to use depreciation in your tax planning?
Depreciation is a tax deduction available to property investors. It allows you to claim a tax deduction for the wear and tear of most old or new investment properties.
However, you can claim a higher depreciation cost on a newly built property compared to an old one. This is because an existing property - say for example a 10-year-old apartment unit – may have already been depreciated over the years.
The first few years of a new investment property offer the most potential in terms of depreciation benefits. It pays to do your research – evaluate and understand – all the items that you can claim depreciation on when you buy a new investment property.
How to claim interest payments as tax deductions?
One of the benefits of investing in property is the tax deductions available to investors but not to homeowners.
For example, homeowners can not claim any tax deduction on repairs, maintenance or renovations done on their own homes. In contrast, property investors can claim tax deductions on those items.
The same thing applies to loans and mortgages.
“Homeowners can not claim any tax deduction on their loan repayments while property investors can.” Carla Nesci, Mortgage Broker at Wealthi
This is because tax deductions only apply to investment loans – investments on properties that generate income (not homeowner loans).
This is a big consideration for property investors as interest repayments are a major expense. And claiming the interest repayment as a tax deduction can be an effective way to optimise the tax benefits on an investment property.
Whether you have an interest-only or principal plus interest loan on an investment property, the interest component of the loan is tax-deductible. While this is general information only and not a tax planning article, it will be worth seeking advice to fully understand and evaluate the tax benefits available to you as a property investor.
Maintenance, agent’s fees and other expenses
Maintenance cost including small repairs – e.g. replacement of light fixtures, screen doors, etc – can also be claimed as tax deductions. This is because as a property investor you are obligated to keep the rental property in good condition for the tenants.
You can also claim the agent’s fees and other expenses related to the maintenance and upkeep of your investment property.
Overall, property investors can claim a lot more tax deductions and incentives compared to homeowners.
Whether you are just starting to invest in property or are already building your property portfolio, it pays to know all the available tax deductions and incentives that you can use to optimise your tax planning strategy.
If you would like to discuss your options and plan an investment strategy according to your goals please reach out to the team to organise a time to have a conversation about how Wealthi can help you: