Tax is one of the main reasons why negatively geared investment property is so popular. The losses...
Investment Property Rental Expenses
Advertising- This only includes advertising associated with obtaining tenants. Advertising costs associated with selling the property add to the cost base of the property and are not available for an immediate deduction
Bank charges- any fees or charges associated with those bank accounts from which you pay expenses associated with the property, or where your income from renting out the property is deposited.
Strata/Body Corporate Fees- Be careful not to account for these expenses twice. If you pay your gardening costs through body corporate fees you cannot claim this expense as a gardening expense as well as through body corporate fees.
Cleaning Costs- If you clean the property yourself, you can only claim a deduction for the materials you used to do so, you cannot claim a deduction for the labour.
Pest Control- such as fumigation costs.
Council Rates- deductible only if you and not your tenants pay the bill.
Electricity/gas- these are only deductible if you pay the bills, not the tenants.
Foxtel- If you supply foxtel for your tenants, you can claim this.
Gardening/ Lawn Mowing- includes tree lopping, fertilizers and sprays.Landscaping costs though, are not immediately deductible, but must be apportioned over a number of years.
Agent Fees/Commissions- those fees paid to agents.
Water rates- only deductible if you pay these and not the tenants.
Security costs- security patrol fees
Servicing Costs- i.e the cost of servicing a hot water system
Quantity Surveyor Fees- The cost of obtaining a quantity surveyors report which outlines the value and depreciation for the property and all of the assets within the property is tax deductible.
Secretarial/Bookkeeping Fees- those expenses associated with keeping records for the rental property. These may include computer and or software items used for the purposes of managing the property, stationary and postage expenses.
Travel- Any expenses associated with travelling to and from the rental property for the purposes of inspecting and maintaining the property, as well as to collect rent are deductible. However, taking advantage of the travel and doing some sightseeing and other activities during this time, may mean that your expenses have to be apportioned to include the private portion of the costs associated with the travel. Also, any travel undertaken with the purpose of purchasing or selling a property is not immediately deductible, but rather are added to the cost base.
Telephone- You can also claim internet fees. Connection costs though, are not immediately deductible.
Land Tax- a state expense that will vary from state to state.
Tax related expenses- accountants fees associated with the investment.
Repairs and Maintenance- These deductions can become very tricky. Only those costs associated with repairing and maintaining a worn out or damaged part of the property, without changing it, are deductible, ie, repairing any wear and tear or damage that has been sustained as a consequence of renting out the property. It is important to remember that only those repairs that have taken place WHILE the property was rented out are available for an immediate tax deduction in the year in which the expense was incurred. Expenses associated with any initial repairs to the property before it was rented out, and any other structural improvements, extensions or renovations are added to the cost base of the property and must be depreciated. So if you purchase a property that is in desperate need of repair before anyone would consider renting it, then the costs of these repairs is added to the cost base and are not immediately deductible.
Insurance- Including policies for general household, fire, contents and landlord insurance. Mortgage insurance is a borrowing expense and is amortised accordingly.
Legal expenses- Only those legal expenses associated with renting out the property are deductible. Be careful, as those expenses associated with the purchase and sale of the property are not deductible as they are treated as capital costs and become part of the cost base of the property, and any expense that adds to the cost base of a property will only become significant for capital gains purposes when the property is sold.
Interest on Loans - You can also claim interest on those loans taken out to finance the purchase of repairing and renovating the property as well as interest on loans taken out to purchase depreciable assets for the property. You cannot claim an immediate deduction for the borrowing costs associated with obtaining a loan to purchase the property.
Borrowing Costs- Borrowing costs include expenses related directly to obtaining a loan and include loan establishment fees, stamp duty (on the mortgage contract), title search fees, valuation expenses, lenders mortgage insurance, costs of preparing mortgage documents, and broker fees. If over $100, these costs are apportioned over the shorter of either 5 years OR the term of the loan.
Depreciation is the other major expense that can be claimed on rental properties which we will cover in another article.
Try our Negative Gearing Calculator to find out the after tax cost of your investment property and how many years until it becomes cashflow positive.