Last year more than 1.4 million people claimed over $25 billion in rental deductions in their tax return. Over 200,000 of these people were claiming deductions for the first time.
With so many people claiming deductions the Tax Office is continuing its focus in this area to ensure you get your claim right.
This year the Tax Office will write to around 110,000 people who have purchased rental properties in the past 12 months with advice on claiming rental property deductions.
Here are a few things to think about when claiming deductions in your 2008-09 tax return.
There are a number of rental property expenses that can be claimed as an immediate deduction.
These include:
- repairing part of the guttering or windows damaged in a storm or repairing part of a fence damaged by a falling tree branch
- maintaining plumbing, repairing electrical appliances or machinery as well as painting, oiling, brushing or cleaning something that is otherwise in good working condition
- preparing a lease agreement with your tenant
- evicting a tenant
- interest on a loan to:
- purchase a rental property or purchase land to build a rental property
- purchase a depreciating asset for the property like an air conditioner
- finance renovations like a deck
- make maintenance repairs or repair damage to the property.
Expenses that are deductible over a number of years include most borrowing costs and the cost of depreciating assets and structural improvements.
Borrowing costs can include:
- stamp duty charged on the mortgage
- loan establishment fees, fees for a valuation required for loan approval and lender’s mortgage insurance
- title search fees charged by your lender, costs of preparing and filing mortgage documents and mortgage broker fees.
If these amounts are less than $100 in total they can be deducted immediately, otherwise they are generally deductible over five years or over the term of the loan, whichever is less.
Major renovation costs and costs to repair damage, defects or deterioration upon purchasing a property can’t be claimed as an immediate deduction. These costs generally must be claimed as either a deduction for decline in value over the asset’s effective life, or as a capital works deduction over 25 or 40 years.
To help you avoid some common mistakes here is a list of things you can’t claim:
- deductions for rental properties that are not genuinely available for rent
- travel expenses when the main purpose of the trip is a personal holiday
- stamp duty charged by your state/territory government on the transfer of the property title or leasehold interest
- insurance premiums where under the policy your loan will be paid out in the event that you die, become disabled or unemployed
- borrowing expenses on the portion of a loan you use for private purposes
- solicitor's fees for the purchase of the property and the preparation of loan documents
- legal costs associated with resisting land resumption or defending your title to the property
- interest on a loan you use to buy a home that you don’t use to produce income or when you start using the rental property for private purposes
- interest on the portion of the loan you use for private purposes like buying a new car.
The Tax Office website www.ato.gov.au/rental has detailed fact sheets outlining what you can and can’t claim for your rental property.
These include:
Rental properties – avoiding common mistakes
Rental properties – claiming borrowing expenses
Rental properties – claiming legal expenses
Rental properties – claiming interest expenses
Rental properties – claiming repairs and maintenance expenses
Rental properties – claiming capital works deductions
If you would like to talk to someone at the Tax Office about tax deductions for rental properties call 13 28 61.
Please read Second Commissioner Jennie Granger’s recent speech 'Tax time in difficult times'.
Interviews with our tax time spokesperson can be arranged by calling Media Relations on (02) 6216 1901.
Audio grabs are available from the media centre at www.ato.gov.au.
Last Modified: Friday, 12 June 2009
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