Video transcript - Overview to claiming your rental property deductions
Your tenants are in and they’re paying you rent and now it’s time to talk about what deductions you can claim.
Michael, let’s talk about what expenses you can claim
Well, my holiday house is available for rent so there are expenses I can claim immediately, and some that I claim over a number of years. But there’s also some I can’t claim at all.
What do mean 'Can’t claim at all'?
Well, things like the actual cost of buying and selling the property and any initial repairs I had to make. Those costs are used when working out any profit, known as a capital gain, when I sell the property.
And if I owned the property equally with my wife I could only claim half of the expenses and I would have to declare half the income.
So we’ve covered what you can’t claim. What can you claim? You mentioned immediate deductions.
Yeah, sure. What comes to mind are things like interest, council rates and travel costs to collect rent and do repairs.
There are also three types of expenses that may be claimed over a number of years:
- First are mortgage set-up costs like loan establishment fees. These are usually claimed over five years
- Then, you can also claim for the wearing out of assets, – known as depreciation - such as carpet and appliances
- And thirdly there are building costs - these are generally claimed at two and a half per cent per year
More information about claiming these expenses is covered in other videos in this series.
So what happens if your property is only available for rent for some of the year?
Then I need to divide up the expenses. So in my case with the holiday house, I can’t claim a deduction for when I use the house myself.
And what if you rent out the property at a reduced rate – say to family or friends?
In that case what I can claim is usually limited to the amount of rent that I received.
Sounds complicated? Not really. Let’s look at what happens when Michael stays in his house for one month. As this is for his personal use he can’t claim deductions for this period.
Here’s how he’d work it out.
For all the expenses that occur evenly, he could simply divide them by 12 to get a monthly rate. That includes interest, council rates, insurance and depreciation.
But some things, like electricity, are directly related to the usage period. So he’d look at the bill for that period and work out what he can’t claim.
If you only rent out part of your property, then you can only claim expenses that relate to that part.
As a general guide, you work it out on a floor-area basis…. and calculate what percentage of the floor area your tenant uses.
If your property is negatively geared - that is, the rental income is less than the loan interest and other expenses you may be able to claim the loss against your other income, such as salaries and wages.
If you’d like to find out more and to watch other videos in the series go to ato.gov.au/rental
This video highlights what you can and can't claim as a deduction and the records you need to keep.