The Tax Benefits of Investment Properties

Property tax deductions can provide significant financial benefits to investors and increase the profitability of your investment. Almost every out-of-pocket expense from owning an investment property can be claimed on your taxable income. There are a range of options for minimising the tax you pay when you own an investment property.

Here are some commonly asked questions about the tax advantages of investing in real estate:

Are investment properties tax deductible? 

Yes, almost every expense related to an investment property can be claimed at tax time. According to the ATO, tax deductions on an investment property can include: loan interest, repairs, renovations, council rates, depreciating assets and more. You can also claim building costs if the property is less than 25 years old. Recent changes to depreciation rules in Australia mean older houses provide less tax breaks.

What are the tax implications of a negatively geared investment property?

If your expenses exceed your income (rent and tax savings), your investment property is referred to as ‘negatively geared’. This means you will experience a taxable loss, which can be claimed as a deduction against your other income to provide tax savings. If the loss cannot be absorbed by your income sources, it can be carried forward to the following income year.

Are investment property renovations tax deductible?

Yes, renovations to an investment property are tax deductible, but you have to be clear about whether the improvements you have made are renovation or repair. Repairs can be claimed in the current tax year, while renovations fall under capital works deductions and are claimed over a longer period.

Can I claim depreciation if I buy an investment property? 

Investment property depreciation refers to offsetting the decline in value of a building and its fixtures against your taxable income. Some older properties have no available depreciation, whereas brand-new properties can provide tax deductions from depreciation for up to 40 years. 

Are investment property expenses deductible?

Many expenses incurred from owning an investment property are tax deductible. These include: interest on the loan, property agent fees, body corporate, council rates, water rates and more. Expenses that are not tax deductible include stamp duty, travel expenses to visit your rental property, and advertising costs.

Will I save tax if I buy an investment property?

Absolutely, there are a range of tax deductions available to owners of an investment property. For example, a brand-new four-bedroom home can deliver over $400,000 of tax deductions in the first ten years of ownership. Expenses that can be claimed on your taxable income include depreciation, repairs, interest on the loan, property management fees and more.

Too often, investors buy a property only to be disappointed that it isn’t providing the tax breaks they had hoped. For personalised advice on what property will give you the best opportunities to minimise your tax, book a free consultation with us today.