There are some really attractive tax benefits attached to being a landlord. It’s basically about turning negatives into positives…
Being a landlord has its perks. Whether it be earning a passive income, the gains that come with property appreciation or the safety net of a residence to fall back on if times get tough, it’s a winner’s game.
With all the top benefits of owning a property, there is often one that is overlooked: tax-deductions. And it may just be the greatest pro of them all.
Investing in property opens the door for a myriad of tax benefits that maximise your tax return and lower how much you’re out of pocket to the tax man. It’s negative gearing 101, and a step closer to financial freedom.
Negative gearing explained
Negative gearing, as explained by the Australian Tax Office (ATO), is when your deductible expenses are more than the income of your property.
The ATO advises that you may be able to deduct expenses from your overall taxable income of the year. This can result in you paying less tax than you otherwise would. Property investors can turn their negative gearing into a positive, which is a great way to retain as much of your income as possible.
Optimising your tax strategy for your real estate investment can be easy if you have the right tools. Apps like RentBetter help to track your property’s income and expenses, and generate end of year reports. If you are organised and keep records of your bills, payments, works and fixes, the process is simple.
There are a range of deductions that you can unlock as a landlord, but here are just four short-term expenses that you can claim immediately.
1. Advertising for tenants
While there are a lot of ‘no-brainer’ tax deductions, advertising expenses are often forgotten about.
Advertising for tenants is necessary to keep your property leased and generating rental income, so it’s therefore a deductible expense.
Costs such as advertising with online platforms, or posting advertisements in the paper (and the resources required to do so) are claimable expenses.
2. Utilities, insurance and operational costs
Every landlord handles utilities differently, but generally they are a tax deductible expense. You can claim deductions on utility bills including water, electricity, gas and internet service.
Some of these costs will be paid by the tenant, in which in that case, they can’t be claimed by you. However, plenty of tenants will like the idea of having utilities included with rent.
Insurance on the house is another must-have, tax deductible expense. You can generally also claim operational costs like body corporate fees, council rates and land tax.
3. Upkeep and repairs
These expenses are costs you incur for keeping your property in a tenantable condition.
You can claim repairs and maintenance in the same income year, but these must be a direct result of wear and tear. Think broken roof tiles that need replacing, carpets wearing out, or maybe even a tired appliance.
This is also true for cleaning or gardening expenses. So you can claim expenses if you need your rental property cleaned or maintained regularly as part of the lease agreement. You can also claim end-of-lease cleaning and servicing if it’s something you are out of pocket for.
4. Interest on your mortgage
If you take out a loan to purchase a rental property, you can claim a deduction on the interest you pay on your loan. Make sure you’re also claiming things like service fees or annual charges to service your loan. For example, if you incur $12,000 interest on your loan per financial year and $800 in loan fees, you can claim this on your personal tax return.
Keep in mind that you can’t claim a deduction on interest expenses if you used the property for private purposes, even if it wasn’t for long. This is also true if you used a portion of your loan for private purposes. These deductions only apply if your property is an investment. It’s another incentive to get into the property investment game.
Tax benefits for landlords are often looked over, but they can be extremely helpful at tax time. That’s especially true if you’re making a higher salary and pushing new tax brackets. With the help of a tax professional, you can claim all the deductions you’re entitled to as a landlord.