Tax benefits of property investing.
One of the main benefits of property investing mentioned in point 1 of this section is investing for capital growth. That is, purchasing quality properties in established or gentrifying areas that are poised for capital appreciation and then benefiting from the long term benefits of those investments. An investment in capital growth is an investment in time.
Properties that are poised for capital growth tend to also be negatively geared because competitive pressure from owner occupiers pushes prices up and as a result lowers the rental yield on that property. The net loss generated however can be offset against other income reducing the tax that would otherwise be payable on that income. This process known as negative gearing is one of the most popular property investment strategies as it utilizes tax deductions to make investing more affordable.
In addition to the negative gearing benefits, there are a number of other tax deductions that the tax office allows property investors to claim. Every dollar claimed benefits your wealth and therefore legal and tax advise that is specific to your circumstances should be sourced to maximise the tax benefits that you are legally entitled to for your individual circumstances.
There are different types of tax deductions that can be claimed on a property, immediate deductions, capital works deductions that can be offset against future capital gains tax and depreciation deductions relating to the building portion of the asset which can be offset over time.
Some common deductible expenses are listed below and are for general and information purposes only as I am not a tax advisor.
Property Management Costs
Costs associated with the letting and management of the property are tax deductible, this includes the cost of advertising for tenants, agent’s letting and management fees, expenses incurred in relation to agents representing landlords at tribunal hearings, preparing or varying the lease agreement, expenses associated with terminating a lease agreement or evicting a tenant and landlord insurance premiums.
Repairs and Maintenance
Maintenance is usually an ongoing cost associated with property ownership. Maintenance costs associated with a repair of an existing fixture, fitting or building works can be immediately deductible, for example, a plumbing invoice for repairing a broken pipe or installing a new lock to a door. Costs associated with purchasing new depreciating assets such as a new hot water system or dishwasher however are eligible for capital works deduction claims and depreciation and not immediately tax deductible.
Travel deductions
Traveling costs are also tax deductible, motor vehicle or airfare deductions can be made when incurred entirely for the purpose of inspecting or working on a property.
If a property is inspected as part of a holiday plan then the costs need to be apportioned to determine the deductible portion related to the property inspection. For this purpose strict dated records and log books need to be kept to substantiate the claim.
Interest on the Investment Loan
Provided the property is available for rent, then interest incurred on money you have borrowed to either purchase or improve the property is tax deductible. This includes interests money borrowed for the purpose of repairs and maintenance or dealing with legal issues against the tenant.
Being available for rent means that the property is visibly advertised for rent, a property manager is engaged to let the property and action is taken by you or a property manager to source a tenant for that property. This is because tax deductions on interest are only available to loans used for securing or improving or managing income producing properties and not homes that you live in or holiday homes.
Securing an investment property against your primary place of residence, holiday home or other personal asset however does not affect the deductibility of interest on that loan. This means that you can use the equity in your home to purchase a rental property and the interest on the loan that relates to the rental property is tax deductible.
Other Holding Costs
Expenses that are related to the cost of holding a property are generally tax deductible upfront. These include but not limited to; strata and body corporate expenses, cleaning and gardening costs, council and water rates (water usage and supply can be reimbursed from tenants if apportioned during that rental cycle), insurance premiums (landlord and building insurance), pest control or anything else required as a cost of doing business in the business of property investing.
About Xenia and ALEXA Real Estate
Xenia is the Principal and CEO of Alexa Real Estate www.alexarealestate.com.au. Xenia developed alexa real estate from concept in 2006 and it has now expanded to a rent roll of over 300 properties and 10 staff members and the company enjoys massive growth every year due to a strong focus on specialisation and solving difficult, specialised property management problems
See Xenia’s real estate blog here: http://blog.alexarealestate.com.au/
Xenia is also an entrepreneur, has developed several businesses in the areas of real estate and self development and is married with 3 children. Xenia loves to share her passion through writing and has written books on in the areas of millionaire mindset, emotional resilience and human consciousness. She has appeared as a keynote speaker on many stages around Australia and overseas including sharing a stage with Bob Proctor at a wealth creation conference in Europe.
Xenia’s books:
Don’t believe everything you think or feel: https://www.amazon.com/Dont-Believe-Everything-THINK-Feel/dp/1507594895
Your Inner Journey to Wealth:
https://www.angusrobertson.com.au/books/your-inner-journey-to-wealth-xenia-ioannou/p/9781456854294?gclid=EAIaIQobChMI3oeky-qN2gIVGiUrCh0l1woWEAYYASABEgLaLfD_BwE
Prior to discovering her gift in developing businesses Xenia was a medical research scientist obtaining a PhD from Flinders medical centre followed by a 3 year post doctoral fellowship at the university of Saskatchewan, Vaccine and Infectious Disease Organisation in Canada. During her post doctoral years Xenia published 8 medical research papers in top medical journals and travelled around Canada and the USA speaking at scientific conferences about her, now patented, vaccines and research.
Other social media pages:
FB: https://www.facebook.com/xenia.ioannou.33
LinkedIn: https://www.linkedin.com/in/xenia-ioannou-290898143/
Twitter: https://twitter.com/XeniaIoannou
Blog: http://blog.alexarealestate.com.au/
