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Tax Tips for Rental Properties

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The tax season is in full swing, everyone is rushing around collecting receipts and accountants haven’t slept in weeks. There’s a good reason for all this madness; tax time represents an opportunity to put some money back in your pocket and you would be insane not to investigate every possible avenue for getting a hefty return before the October 31 deadline.

Tax deductions from rental properties are a huge asset when it comes to squeezing a little extra out of the taxman. Last year more than $38.5 billion was claimed in rental property tax deductions, if you have a rental property make sure you don’t miss out on your slice of that pie.

Here are some tips for turning that long-term investment into an immediate payoff.

Turn the Interest You Pay into a Paycheck

You can claim deductions for interest on a mortgage or loan for an investment property. You can even prepay your interest for up to 12 months in advance and claim an immediate deduction in the current year.  Remember, you can only claim for interest that is paid on a loan that is dedicated to the rental property. We would always recommend separating business and personal loans, which makes it easier to calculate and validate any interest expense claim.

Borrowing costs on establishing the load for the investment can also be expensed on a pro-rata basis over five years.

Choose Your Immediate Deductions Carefully

You can claim immediate deductions for expenses such as advertising costs, land tax, body corporate fees and council rates.

Deductions for repairs and maintenance due to everyday wear and tear are generally deductible. If, however, a property is purchased where repairs and maintenance are already required, these expenses would be deemed Capital improvements or initial repairs and not eligible for an immediate deduction.  These expenses can be added to the cost base of the investment and claimed as part of the building write off claim at 2.5% per annum.

Don’t Forget About Depreciation

Depreciation calculations can be complicated. Engaging a quantity surveyor to assess your property and provide you with a depreciation schedule will save you both work and money as it ensures you do not miss any depreciation claims.

If your property was built after 18 July 1985, this is definitely something you should invest in.

Be Honest

The ATO has access to a range of information, which can be used to validate your return information. The ATO is placing even more of an emphasis on auditing this year. Keep your receipts to justify any claims you make—you don’t want to be defenseless if the auditor turns up at your doorstep. The ATO is also targeting those people that have overseas investment properties; Australian citizens need to declare any income generated overseas as part of their total income. If you have an overseas property, declare it.

Spend Some Time with Your Investment

Jump in the car and go and visit your property. Check on the tenants, look for any necessary repairs or assess work being undertaken on the property. As long as the purpose of travel is reasonable, and deemed necessary, it will be deductible.

Minimise your Capital Gains Tax

If you’re selling your property, signing the contract after July 1 will defer any capital gain for another year. Properties that are held for more than 12 months are eligible for the discounted capital gain benefit resulting in only half the Capital Gain being assessed. If you’re going to sell waiting until you’ve had the property for 13 months may be very beneficial.  For more information, read Capital Gains Tax Explained.

So, if you think owning an investment property is a good long-term investment a good tax advisor will help you.

Contact Online Tax Australia for All Your Online Tax Return Needs

If you’ve been searching for an experienced, professionally qualified, transparent accountant that truly understands tax rules and regulations in relation to rental properties, then contact the friendly team at Online Tax Australia today:

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