The biggest tax deductions for rental property investors

More than one million Aussie property investors fail to claim free money that’s owing to them because they ignore some important tax deductions.

PROPERTY investors have been battling falling prices and rising interest rates lately, so anything that puts money back in their pockets is welcome.

Tax deductions fit the bill perfectly, but many investors do not claim everything they should.

BMT Tax Depreciation CEO Bradley Beer said depreciation deductions for fixtures, fittings and building costs of an investment property were the most commonly missed tax claims because “it’s not something you see” like council rates or insurance bills.

“People don’t understand it very well — that’s why they miss it,” he said.

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“I would say 70 to 80 per cent of investors are not maximising their deductions.”

Property investor, author and university lecturer Peter Koulizos said interest expenses were the biggest tax deductions for the majority of property investors.

Real estate investors can get lucrative tax deductions without spending any money.

“That’s why it’s very important for people to separate their investment loans from their other personal loans,” he said.

“And also remember it’s only the interest that’s tax deductible, not the principal and interest payments.”

Depreciation deductions were usually the second-biggest tax claim, Mr Koulizos said, but many people did not get a comprehensive depreciation report because they didn’t want to pay for it.

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“Many people are happy getting hundreds of dollars back in their tax return, but aren’t you better off paying $500 and getting thousands of dollars back?”

Depreciation reports cover every possible deduction — ranging from rubbish bins to towel rails — and typically cost between $500 and $800.

BMT’s analysis of tens of thousands of depreciation reports found that airconditioners, carpets and floating timber floors delivered investors the biggest average annual depreciation claims.

Government rule changes last year axed deductions for home fixtures and fittings that were not bought new by an investor, but Mr Beer said there were still “substantial deductions” available for most investors.

The biggest deduction, not affected by the rule change, is for capital works. This is usually a 2.5 per cent annual deduction each year for the building cost of a house, but not the land. For a $200,000 house, this alone is worth $5000 a year.

“We are still seeing people every day who are not doing things properly and their accountant says ‘let’s fix it up’. We get more of this in tough times,” Mr Beer said.

And don’t think you’ve missed the boat. “You can amend two years of tax returns very easily,” he said.

TOP DEPRECIATION DEDUCTIONS

• Airconditioning $924

• Carpet $716

• Floating timber floors $709

• Lifts $490

• Blinds $468

• Ovens $333

• Dishwashers $324

Source: BMT Tax Depreciation claims 2017-18

Originally published as The biggest tax deductions for rental property investors