What tax deductions are available for investment properties?
Investment properties are a popular long-term wealth strategy for Australians, delivering both a regular income stream and an asset that should appreciate in value over time. One-fifth of people in the country had at least one investment property in 2016 – up from 17 per cent the previous year, according to ING DIRECT figures.
But if you’re looking to join the ranks of Australia’s growing army of investment property owners, you’ll need to educate yourself on what deductions are available.
You will incur various costs as an investment property buyer, some of which are immediately deductible from your next tax return if you are letting a home out or it is on the market to rent. These include:
Interest on home loans;
Council rates, strata fees and land taxes;
Costs for advertising the property;
Repairs and maintenance;
For a comprehensive list, check the Australian Taxation Office website.
Many of the items within the property will decline in value over time. Furnished homes may come with a number of these depreciating assets, such as:
You can make deductions for these items on your returns, but when and how much you are allowed to record will depend on the asset’s original value. Items worth less than $300 can be immediately deducted outright, while more valuable goods must be deducted over a certain number of years.
When a depreciating asset forms part of the building itself, you can make deductions for capital works. For example, common fixtures are:
Hot-water system piping;
Baths, toilets and bidets; and
The amount you can deduct for building and structural improvements will be either 2.5 or 4 per cent, depending on when the construction began, what work was carried out and how the new fixtures are used.
Are you ready to buy an investment property?
The rules for investment property purchases changed earlier this year, with the Australian Prudential Regulatory Authority introducing regulations to tighten lending criteria to investors.
As a result, you could face higher interest rates when getting a home loan than in previous years. However, Australian mortgage brokers have access to a huge panel of lenders and can help you navigate the market to find the ideal mortgage.