Tax Tips for Property Investors
Given the number of tax benefits the Australian property market is offering its investors, it’s no wonder that this very field continues to attract more and more people, making property the main choice when it comes to methods of investing.
However, tax benefits also imply that the investors should understand many of their obligations, old and new, before they try to lodge a claim with the tax office, for example.
No matter what your current plans are, it is important that you try to get the most out of the yearly tax return. Here are some tips on how you can do that.
Claiming Interest Charges on Your Loan
If you generate rental income using one of your investment properties for a certain period of the year, then you are eligible to claim the interest charges for the mortgage of that exact time period.
Moreover, you can rely on your loans for property assets when it comes to claiming interest charges. This includes renovations, repairs, or even a piece of land where you plan on building a rental investment property.
However, you will have to make sure that your records are clear. If it is shown that the property has been used for private purposes as well, you won’t be able to claim any interest for that certain part of the year.
Claiming the Landlord’s Insurance Premium
One thing that property investors usually forget in terms of tax deduction is the landlord’s insurance premium.
When claiming it, you should also check if you have the right amount of coverage – for both your general house insurance and for your landlord’s insurance. As you may already know, underinsurance is one of Australia’s big problems. Many homes are known to fall short of the minimum coverage that is required when a disaster occurs, and the property has to be rebuilt.
When you own an investment property and you also gain rental income from it, you may claim depreciation on both the building and on some of the assets that are within it.
Naturally, this depends on the time when the building was purchased, as well as on whether the assets within it were purchased by you or someone else. If the property was purchased as new, then you will be able to claim depreciation on both its assets and on the building itself. When the property is not brand new when purchased, there will still be some deductions that can be found.
In such scenarios, you may want to consult the specific experts and determine whether the depreciation element of your tax claim is actually correct or not.
Reducing Income Tax via Negative Gearing
A negatively geared investment property implies that the rental income you earn is less than the expenses of your property. This includes the interest on the loan that you relied on when you financed the property.
Also known as a net rental loss, this can be seen as an offset against your income and can be used to reduce your tax payable. However, when it comes to negative gearing, you have to make sure that you claim it only for the period when the property is available for rent.
Making Sure to Save Your Records
Our final tip for today is to make sure that you, as a property investor, hold on to any records related to purchasing contracts, capital gains tax, financial records, as well as any evidence of expenditure on property improvements.
These documents will prove themselves essential in the years to come, as they will be used to form your cost base. It is very important that you take your time and store them in a safe location. Doing so can prevent a great deal of stress and frustration, as you will avoid any loss of income when you finally decide to sell your property.
Naturally, besides the aforementioned tips, you also have to be aware of the basic ones, such as being aware of the income that you absolutely need to declare, recognizing what you can actually claim, understanding what you can’t claim and why, not forgetting to claim the interest that you are able to, as well as finding our whether you are exempt from capital gains tax or not.
In short, there are a lot of things that you have to learn as a property investor. And as the list gets longer it’s best to seek out professional advice for both investing and tax advice to ensure you’re structured correctly and receive the most benefits from your investment properties.