Tax Deductions That Property Investors Can Claim

When you seek to achieve financial freedom, an investment property can be an attractive proposition. And, investment property comes with tax benefits. A landlord gets several options to bring down their annual tax bill. A large number of times, these deductions are the difference between a negative cash flow and a positive cash flow. Investors are eligible to claim deductions on their property for the period/s in which it was rented. And, they can claim a deduction for the portion of an expenditure that was used for business purposes. Therefore, they should calculate depreciation on rental property and prepare a record to prove all these details.

Here are the top tax deductions that property investors can claim:

1. Loan Interest:
Investors will be eligible to claim the interest levied on a loan for an investment property. They can also claim interest on any bank fees for servicing that loan. For instance, if you happen to incur $20,000 interest on your loan and $200 in loan fees, you can always claim them on your personal tax return.

2. Rental Advertising Expenses:
Landlords make efforts to find tenants and spend money on various types of advertisements. If you advertise your property using various online tools, brochures, and signs, you can claim them in the same year.

3. Land Tax:
If you have a rented home on your investment property, you use the land tax as a deduction. The tax and the timing may differ between states; the timing will decide when you can claim the cost. You may consult the tax advisor of that particular state to get an idea of the estimate tax returns. He will also let you know that you have claimed the right amount in the right year.

4. Strata Fees:
If your property happens to be on a strata title, you can also claim the cost of body corporate fees. If the fee includes garden expenditures and maintenance, you won’t be able to claim these expenses separately.

5. Capital Gains Tax Discount:
If you made a capital gain by selling the investment property, you must pay tax on profit. If you purchased and sold the property in a period of 12 months, the net capital gain gets added to the taxable income. It will raise the amount of income tax you will be paying. If you had possession of the property for more than a year before selling, you will get a 50 percent capital gains discount.

6. Building Depreciation:
Depending on when your property was constructed, you can claim a deduction on the depreciation of the building structure. You can also claim a deduction if you undertook any renovation on the property. You should have a clear idea about the allowable depreciation on rental property.

7. Stationary and Phone Expenses:
If you are a landlord, it is similar to running a business venture. You can claim deductions on phone costs, internet, electricity, stationary, etc. But, you must claim for that portion of these expenditures that relate to the investment property.

Conclusion:
You must have a clear idea of the various deductions that you can claim. As per the record of ATO, there are 1.9 million property investors residing in Australia. The country has a whopping 2.7 million rental investment properties. Every year, many property investors miss making claims of allowable tax deductions. It happens because they lack the awareness of all the expenditures they can claim as tax deductions. As a property investor, you should be aware of the tax deductions and Deppro depreciation to make the most of your investment property.

Own a Rental Property? Know Your Tax Deductions

Rental properties are a very lucrative investment opportunity for those involved in real estate. Apart from creating a property as an investment, it also turns the investment as a regular source of capital from tenants. However, rental properties also come with some significant taxes. But if you are smart enough, there are ways to save on the taxes. Let’s take a look at how you can claim tax refunds on your rental property.

Capital Gains and Tax

Before we delve into claims about tax deductions, we must understand an important concept: Capital Gains Tax. A capital gain is when the selling price of a property is more than its cost base. A capital loss is the reverse; the selling price is less than the cost base. The CGT is applicable when you derive capital gains from selling your property.

To minimize your CGT, the straight route is showing the capital gains as low as possible. There are perfectly legal ways to do so, primarily by including all possible expenses into the base cost of the property. You can also apply for capital losses from previous years if any. Creating the investment property depreciation schedule and capital works schedule is another way.

Tax Deductions You Can Claim

There are a variety of expenses you can claim for tax deductions, like:

  • Advertising expenditure for finding tenants
  • Any interest incurred over property investment loan
  • Insurance of the property
  • Travel expenses incurred while traveling to inspect your property (subject to scrutiny)
  • Water costs
  • Council costs, if any
  • Management fees of your real estate, if you hired professional help for the same
  • Deprecation on residential rental property assets like air conditioners

While it seems straightforward, being able to claim these tax deductions come with certain requirements. For starters, you must maintain all physical bills and/or bank statements for transactions covered above. Two things must also be maintained accurately: depreciation schedule and capital works schedule.

The depreciation schedule lists all the properties/assets you own on the rental property. It also mentions how much you can annually claim in depreciation tax deduction on rental property. The capital works schedule consists of the building and construction costs of the rental property. It is important to maintain all the bills while you were building the property. In case the bills are amiss, one can ask an architect or builder to assess the costs involved in the construction of the property.

Tax Deductions You Can’t Claim

There are also certain costs that you can’t claim for tax deductions:

  • Any cost incurred while you used the rental property for your personal use
  • All the utility bills paid by the tenants, like electricity, etc.
  • The inherent costs associated with buying and selling of properties are already included within taxes and thus cannot be claimed for tax deductions
  • Sometimes, owners borrow money against the property, like selling its equity or mortgaging it. The costs involved in such loans cannot be tax deducted.

Note: While we mentioned that inherent fees involved in buying/selling of properties are not eligible for tax deductions, many other charges during the buying/selling can be eligible for the same. Thus, it is advisable to maintain all bills of the process.

Final Words:

Rental properties are a great investment opportunity. By claiming the tax deductions in the right way, you can increase your profits from your property even further.

What You Need to Know About Short Term Leasing Your Investment Property

Short-term leasing has taken the property industry by storm in Australia. The industry witnessed a whopping growth of 47 percent. According to reports, 30,000 homes have been leased in the year 2018 alone on a short-term basis. As the short term rental market is becoming competitive, house owners can still capitalize on it. There are many benefits of leasing out a property on a short term basis. Everybody aims to generate some yield on investment property. If you plan to rent your property in such a way, you must remain ahead by focusing on quality. This will help you beat the competition prevailing in this segment.

Given below are some of the things that you must know about leasing your property for short term:

Boosts Rental Yields:

Renting your property on a short term basis can enhance your rental yields. If you want to boost your rental yields, the property must meet the requirement of location. All the locations cannot be the same. There are experts who will provide you with useful advice about your property and its location. Properties located at a famous location must be high in demand. Such properties can generate a handsome profit. So if you are planning to invest in a property, check its location on a priority basis and then make the investment. You must also find out the entire tax depreciation cost.

Depreciation on Short Term Rentals:

Short term rentals can lead to high deductions as you also provide the furniture. The original structure of the property will be eligible for division 43 deductions only if it was constructed after September 1987. The plant and equipment items in the property will be of great significance and not just the main assets like furniture it will also include other items in the property like blinds, AC, carpets, etc. However, furniture items do give you a strong edge as these items receive high rates of depreciation. Things have undergone a change in May 2017. If you purchased an investment property after May 2017, you will be eligible to claim for plant and equipment deductions. For this, you must purchase the property as brand new. You can seek the plant and equipment deductions for the furniture if you purchased the established property after the year 2017, May. You must generate the property depreciation reports in an effective manner.

Ways to Claim Plant and Equipment Deductions on Furniture if You Bought After May 2017?

All you have to do is just purchase the pieces of furniture in brand new condition and, get them installed at your income-generating property. As long as you fulfil this condition, you can claim plant and equipment deductions on the furniture.

Conclusion:

It is time to tap the vast potential of the short term rental market. Do not deprive yourself from the immense benefits that you may receive from leasing your property on a short term basis. And, when you install new furniture in the property, you can avail some very worthwhile deductions by renting it out. Calculate the property tax depreciation and start the planning of renting your investment property.

Significance of Real Estate Depreciation for Rental Property Investors

Many rental property investors fail to comprehend numerous tax advantages that they are entitled too, in particular, real estate depreciation. When you own a rental property, you are bound to receive tax advantages. Real estate depreciation can be defined as an income tax deduction wherein a taxpayer can retrieve the expenses or other costs. A depreciation schedule can bring down the taxable income of investors. A large number of investors also call it; a phantom expense. The IRS allows investors to avail tax deductions on the basis of an apparent decline in the real estate’s value. Real estate depreciation expects that rental property’s value dip over a period of time due to wear and tear. The investor may get cash flow from the property and may reflect tax loss courtesy because of real estate depreciation.

Advantages of displaying investment property tax depreciation

You can avail the advantages when you show investment property tax depreciation. The main advantage is that it can bring down the overall tax burden. It can also benefit real estate investors as they can save a substancial chunk of money every year on their taxes.

Investment properties that can be depreciated for tax deductions

If you want to make your property eligible for depreciation, you need to meet certain requirements. The taxpayer needs to have possession of the rental property and can also depreciate capital improvements. You must use the property in business or income-generating activity. If a taxpayer uses the property for business as well as for personal reasons, they can only deduct depreciation for business use. And, the property needs to have a calculable advantageous life of more than one year. You may seek some professional advice on how to calculate the exact depreciation residential rental property.

Tips to calculate real estate depreciation

It is not a mammoth job to calculate the exact real estate depreciation. You can carry out the calculation in 3 easy steps given below:

  1. The real estate value is constituted by land and building values. And, depreciation applies only to the building. The first and foremost step is to allocate the property’s purchase cost. After that, the purchase cost must be allocated between the land and building value.
  2. As you know the land is not liable for depreciation, it is the building that will be subject to depreciation. The building is to be depreciated over the IRS prescribed useful life. The life is labeled as 27.5 years for residential rental property and 39 years for commercial land. Now you ought to divide the building value by 27.5 to obtain the depreciation expenditure. You can also take the help of experts to prepare the rental property depreciation schedule.
  3. Now you need to multiply the depreciation expenditure by the marginal tax rate. This will give you property tax savings from real estate depreciation.

Conclusion:

Real estate depreciation is a vital tax deduction for the scores of real estate investors. The real estate investors must not neglect it. It is crucial for investors to comprehend the fundamentals of depreciation. It will offer benefits to investors with tax planning. They will also comprehend the important after-tax investment returns. In the longer run, it will help them in claiming depreciation on a rental property.

 

How is Depreciation Applied Following Natural Disasters?

Irrespective of the country you are in, you would often hear of the havoc that natural disasters can cause. Whether it’s the bushfires in NSW or Queensland, or the Victorian floods this year, natural disasters happen with frightening regularity. While the loss of human life in such disasters is an irreparable loss, there are other ways that the victims suffer. For example, the destruction and damage of property causes losses of millions of dollars every year, for homes, offices, and commercial property. The owners of these properties find themselves in a very difficult situation. Some need to be rebuilt from scratch. Others are slightly luckier, and they can get by with replacing most of their assets.

This rebuilding and renovating after a natural disaster does often result in an almost new structure. As far as the property valuation goes, it impacts the tax payable as well. This is because the property attracts different depreciation rules after repairs following a natural disaster. Because of the different depreciation amounts and percentages, the tax-deductible due to depreciation also changes. After suffering such loss of property due to a natural disaster, the least you can do is to ensure that you don’t pay more tax than you ought to.

A Few Definitions

Before you get into the calculation of depreciation for tax purposes, it’s best to understand a few key terms that would often be used. When you need to undertake minor work in order to return your house to its earlier condition, you are said to be undertaking repairs. Sometimes, some fittings or fixtures of your house are spoilt, broken, or damaged after the natural disaster strikes. In that case, they would need to be replaced by new assets. When you undertake some works to improve the look, utility, or specifications/dimensions of some assets without replacing them, you are said to have improved or upgraded it. If you are working on your tax-related depreciation calculations yourself, it is imperative that you know and understand these terms – even if you are employing the services of a quantity surveyor, you should still be aware.

How to Calculate Depreciation?

If you wish to make an accurate property depreciation report, you need to understand the different calculations yourself. First, if it is simple repairs, then you need to immediately deduct those expenses if you do not have insurance coverage. If you have insurance, you need to also declare the insurance income you received. If your work is a little more detailed and you need to replace things, then you must first find out the residual value of that replaced asset – this is only if you do not have insurance. If you do, then before claiming depreciation on property, you must adjust the values of Individual Depreciation Assets and Capital Allowance. The flow of calculation would be similar when you are improving or upgrading your assets.

Conclusion:

There is no denying the fact that if your property is hit by a natural disaster, there is little you can do, except wait till it passes. But later, you can always make an accurate assessment of your depreciation to minimise your tax commitment.

4 Tax Deductions Everyone Should Know While Investing in Property

Many people lack awareness about one of the most profitable tax deductions investors use to make a purchase economical. Interest has emerged as one of the major expenses of buying an investment property. And, a large number of people are not aware that mortgage interest payments on an investment property is tax-deductible. For the benefit of investors, interest has emerged as a cost that is deductible from rental income; it can help in minimising your tax obligations. If you are planning to invest, it is ideal to gain some knowledge of property investment. You should seek the services of experts for claiming depreciation on investment property.

Below are some of the main tax deductions that you should be aware of:

1. Maintenance and repair cost:

In order to maintain your investment property, you may have to indulge in some maintenance and repair costs. There are various types of repairs and maintenance such as repairing a leaking roof or fixing a damaged tap; these costs are all tax-deductible. Your property agent’s charges and insurance will also be deductible. You can claim the costs of running your home office like electricity, internet or rent to the level you use it for investment. Your advisor’s fees, accountancy fees, and property investing subscriptions also fall in the category of tax-deductible items.

2. Loan interest:

It is noteworthy that annual interest paid on investment loans will be tax-deductible. You should asses your property investment returns with the utmost care. An experienced investor knows that interest on borrowed money for investment property is deductible. It does not matter whether the money is for stamp duty or legal fees. You only have to prove that the funds are related to the investment purchase. And, it holds true whether you borrowed the funds from a bank or from different property’s equity.

3. Depreciations:

Many people frequently ignore depreciation deductions in old properties. They are under the notion that old properties lack depreciation value. However, this is not true. If you make any renovations or improvements to an older property since its construction, it can also depreciate. As your accountant won’t be able to prepare a property tax depreciation schedule, you can hire a quantity surveyor.  You should use the services of an expert quantity surveyor as he can spot all depreciation available on the property.

4. Travel:

At times some traveling undertaken for the purchase, maintenance or inspection of your investment will be eligible for a claim. You can claim by cents per kilometre for traveling undertaken to these experts or even to your own property. If you failed to claim them in the past, you will be allowed to put an earlier date. In case some confusion prevails, you can speak to an expert tax accountant.

Conclusion:

It will turn out to be profitable for you to improve your awareness of common tax deductions. Several studies claim that younger people tend to remain unaware of the various tax deductions. Few people are aware that interest repayments are eligible for tax deductions. Some experts say that the higher prices of houses may have caused people to get less occupied in research investing. However, you should not forget to claim your tax depreciation and in case you find the calculations tricky, you may seek experts’ services.

How Much of Your Investment Property Costs Can Be Claimed on Tax?

Owning a property, while a good investment, can also be heavy on the taxes. However, only a few people know that much of it can be claimed as tax-deductible or as depreciated items. But how much and what exactly can be claimed on tax? Let’s take a better look.

Knowing the Typical Tax Deductions

To begin with, you must keep receipts of all your expenses on your property investment. Next, you should identify all the things that can be claimed for tax deductions. For land owners in Australia, there are a significant number of costs that fall under this:

  • Loan interest and fees for any ongoing loan. Both of these are usually included in the loan statement and can be directly used for deductions.
  • Land tax and council rates are tax-deductible. Body corporate fees for villas, apartments and townhouses alike are also usually tax-deductible.
  • Insurance for both the building and the landlord is tax-deductible.
  • Bookkeeping and account fees are also tax-deductible.
  • Miscellaneous costs like traveling costs to property, stationery items, phone cost, advertising for tenants, ongoing property management fees and re-letting costs are also usually tax-deductible.

Careful with the repairs

Repairs are a tricky field when it comes to tax deductions. The nature and extent of repairs usually decide whether it is tax-deductible, but it is murky waters. Ongoing maintenance operations like gardening and pest control are generally included under tax deductions. Repair of objects within the property, like a faulty water heater, might be claimed under tax deductions (though you would need to check the specifics beforehand).

When you replace an item within your property altogether, legally it no longer remains a ‘repair’ and becomes instead an ‘improvement’. Any such improvements on the property cannot be claimed for tax deductions. However, such replacements are eligible for depreciation for property.

Using depreciation for deductions

For property owners, depreciation is often the best way to get tax deductions. As mentioned before, home improvement cannot be directly deducted from tax but is eligible for depreciation. Landlords usually opt for depreciation on investment property due to the sheer range it covers, almost everything within the property – garage, kitchen floor, windows, etc. – is eligible for it. Even items used for interior decoration like carpets and curtains can be included for depreciation.

However, the range can also often get confusing. It is easy to forget what items could be applied for depreciation and what couldn’t. There are professionals like quantity surveyors that can thoroughly examine everything on your property and prepare a depreciation schedule for investment pro.

Having a professional Deppro contact number in your pocket might come in handy! For instance, all of the legal costs involved in buying a property are not eligible for tax deductions. Instead of this, costs like stamp duty and legal fees can be used to reduce your capital gains tax when you sell the property in the future.

Conclusion:

Property investments can be a costly affair, thanks to the huge taxes they incur. But if you are smart enough, you can legally save a lot of money on tax claims.

Top 4 Tips for Maximising Depreciation Deductions in Your Hotel

When one mentions the word hotel, what springs to mind? Cozy rooms, tasty food, well-stocked wine cellars and men and women trying to make their guests comfortable. But behind the scenes, hotels have a lot of wastage (electricity, water and food). This wastage reduces their revenue and income. While hotels might look glamorous on the outside, they too need to save every dollar behind the scenes. One of the less known but very effective ways for hotels to save their hard-earned money is by filing the correct Australian tax return. This blog will tell you four easy ways to legally reduce your tax outlay for your hotel.

Hotel Depreciation Schedule

In case you are in the process of buying a hotel now, then the complete inventory of its assets would already have been made earlier. But you need not lose out on the available tax deduction on account of depreciating inventory/assets. You can still employ the services of a certified quantity surveyor and create a federal tax depreciation schedule. The assessment of different assets of a hotel is more complex than that for a residential property. The assets which qualify as ‘plant and equipment’ in a hotel have a separate listing in the ATO Depreciation rates. That is why a competent quantity surveyor can ensure that any claim you are eligible for doesn’t get missed out on. The quantity surveyor would also ensure that you do not pay tax for the same asset twice.

Make your renovations count

A hotel always needs to look its best at all times. That is the reason hotels undergo renovations or refurbishments quite frequently. As a hotel owner, you need to make sure that your depreciation schedule stays updated always. To ensure this, keep your quantity surveyor informed whenever you are planning an activity. They would advise you what to do with the assets you are replacing, and how to list it in your property report. Many hotel owners make the mistake of sending discarded items/assets to scrap. While the renovation is in full swing, keep your discarded assets aside, and also list out all the new fixtures and fittings being installed. At the end of the refurbishments, the quantity surveyor will make an overall assessment and update your depreciation schedule.

Try to stay within the industry

Like we mentioned before, hotels in particular and the hospitality industry in general, are quite different from others. While looking for a quantity surveyor, try to engage one who has extensive experience with hotels. That way, you will not need to explain your peculiarities to him, and he can easily understand your industry lingo.

Different treatments while buying new

We spoke earlier about situations where you are purchasing an existing property. If you do have a new hotel purchase, then you need to consult your quantity surveyor about how best to treat your assets. This will help you maximise your tax deductions and save money.

Conclusion:

If you are buying a hotel or own one, please make sure you get the best possible benefits of tax deductions on account of the depreciation of your property.

Can Depreciation on My Rental Property Be Back-Claimed?

Several property investors are not fully aware of the tax benefits they can claim from their rental property. As per ATO rules, a certified quantity surveyor can help such investors reduce their tax burden. This is on account of the depreciation on their property every year. A quantity surveyor can help them make a detailed tax depreciation schedule for rental property. This would then help reduce their taxable income. As a result, the annual tax also gets reduced. Were you aware of this? If so, then you must be claiming the due depreciation tax benefit every year. But things not stopped here. Let’s say you missed claiming the depreciation on your rental property in some previous year. You might have given up that tax deduction as lost forever. But that is not correct. You can also back-claim your depreciation benefits on rental property. Read all about it here.

How Many Years Are Back-Claims Permitted?

This would have been the first question in your mind by now. The ATO has different sets of rules for different categories of taxpayers. If you are an individual taxpayer or the owner of a small business, then you can back-claim missed returns of the last two years. For other categories of taxpayers, this period is four years. For all these periods, the date of calculation is important. ATO guidelines state that the date of notice for tax assessment is the date from when the period is considered. In case you haven’t got any notice, then the date you filed your incomplete return is considered. Also, for the same period, you can submit more than one request for amendment.

The Process for Back-Claim of Previous Years

The process begins with a simple request for amendment made to the ATO, which is free of cost. After that, you need to wait for the ATO to send you the notice for submitting the amended return. While you wait, you should get your amended rental property depreciation report readied. The ATO website does provide all details for you to do it. But you should get this done by a certified quantity surveyor or at least consult your tax accountant. That way the chances of errors are minimised.

A Review of the Entire Process

Now that you know that a couple of years of delay can be corrected, you need to understand the complete picture. ATO rules allow you to claim tax relief on account of depreciation. Depreciation is the annual reduction that your rental property suffers. This is a normal accounting principle. You can claim depreciation for both fixed assets and other fixtures and fittings.

Conclusion:

You may have submitted incomplete rental home returns in previous years. It could be simply because you didn’t know about it or you might have missed it. All it means is that you paid a slightly higher tax that year. But that mistake can be easily corrected. You can back-claim for two to four years, depending on what type of taxpayer you are. Get in touch to learn more and speak to one of our professional team members for more insight.

The Magic of Depreciation for Investors

Novice investors have a simplistic view of making legitimate money from their investments. They look towards buying at lower prices and selling at higher prices. The difference between a buying and selling price is the profit, as any school mathematics textbook will tell you. This is the simplest way of making money from investments, for sure. But there is another very interesting concept called depreciation. If these investment property depreciation rules are understood and used wisely, it can help investors shield themselves from investment losses in bad deals. Alternatively, it can also help them improve their profits on a good investment.

What is depreciation?

The notion of depreciation is based on a simple concept which we all know. The value of anything reduces due to wear and tear as we keep using it. This is called depreciation and it is used for cars, machines, and even for houses. As property depreciation consultants will tell you, this concept can be used to your advantage if you are an investor.

What Conditions Must You Comply With?

Before you plan on claiming depreciation on an investment property, you need to familiarise yourself with some dos and don’ts. The first thing to remember for claiming property depreciation is that you must be the clear titleholder or in other words, the owner. This condition holds even if there is a bank mortgage on the property. This property must be income-generating for you or your business. There is another interesting element of the depreciation rules in force. The calculation of depreciation starts as soon as your property becomes available for rent. The date of the first advertisement for the rental of a tax depreciation investment property is important here. It is usually considered the start date for depreciation calculation. This is true even if the tenant is not fount immediately.

The Calculation of Depreciation

The first thing to know while calculating depreciation for any asset is the legal period for such calculation. Broadly, this corresponds to the estimated useful life of the asset. As per ATO guidelines, this period for a residential property is 27.5 years. Likewise, for a commercial property, it is 39 years. Appliances already fixed or newly installed in the property have a depreciation period ranging from five to seven years. There are several methods used for the calculation of depreciation. The most commonly used one is the Straight Line Method. The basis for this method lies in two assumptions. Firstly, that the asset has a fixed useful life, which we discussed above. The second assumption is that the reduction in the value of the asset takes place at the same rate over this period. What this means that the depreciation amount for each year would be the same. There are many other methods used, and they are chosen on the basis of specific characteristics of the asset getting depreciated.

Conclusion:

Depreciation is an unavoidable occurrence for any asset you own, including property. But if you understand the depreciation rules for rental property, you can easily sweeten the deal by claiming your tax deductions for the depreciation your property suffers every year.