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.
Immediate expenses
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;
Home insurance;
Cleaning; and
Water charges.
For a comprehensive list, check the Australian Taxation Office website.
Depreciating assets
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:
TVs;
Freestanding furniture;
Vacuum cleaners;
Curtains; and
White goods.
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.
Capital works
When a depreciating asset forms part of the building itself, you can make deductions for capital works. For example, common fixtures are:
Electrical wiring;
Fire places;
Hot-water system piping;
Fixed mirrors;
Satellite dishes;
Baths, toilets and bidets; and
Built-in wardrobes.
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 last 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, we have access to a huge panel of lenders and can help you navigate the market to find the ideal mortgage.
Talk to our team today to discover how we can support your property investment dreams in 2018 and beyond.
The information in this article is general in nature. When considering the tax implications for an investment property, please consult your accountant or professional tax specialist before making any decisions.