Getting started in the world of property investment can be a nerve-wracking experience. With so many things to consider, it can be difficult to know where to begin. Finding the right property can take time and you want to be sure that your investment is solid and that you will be able to turn a profit in the very near future.
As a new property investor, you also need to understand your tax obligations and what deductions you can claim. Maintaining and operating an investment property can be expensive. From repairs to advertising for tenants, general upkeep, insurance and all of the other costs associated with your investment property, the costs can add up quickly. Having a good understanding of what you can claim against your taxable income at the end of the year could potentially save you tens of thousands of dollars come tax time, leaving you with more capital to grow your portfolio going forward.
Continue reading to learn more about some of the tax deductions you can claim as a new property investor.
Depreciation is one of the most beneficial tax deductions property investors can claim. Every building experiences wear and tear over time, which accounts for depreciation to the property. To claim depreciation as a tax deduction, you will need to create a depreciation schedule for your rental property which will breakdown all of your building, plant and equipment costs, outline the rates you can claim for various items and the typical expected lifespan of each item to determine how much you can claim each year in tax deductions.
Any interest that you pay on loans related to your investment property can be claimed as a tax deduction. Borrowings related to buying shares, interest paid on the mortgage of your investment property and interest on other loans directly related to your investment property can be claimed as a tax deduction at the end of the year saving you hundreds of dollars.
While purchasing a property is an expensive investment, it’s important to remember that you will also have a variety of ongoing costs each month. These costs can add up quickly but luckily many of these expenses can be claimed against your taxable income at the end of the financial year. Examples of some of these expenses are insurance, general maintenance, property repairs and water rates, gardening, council rates, pest control, land taxes, cleaning, body corporate charges, advertising costs, property agent fees and commissions.
As a new investor, you must manage your finances efficiently. For this reason, many new property investors hire an accountant to ensure that their books are always in order. You can claim for accountant fees related to receiving advice, preparing tax returns and any additional costs for managing your rental accounts. These tax deductions can save you money and effectively lower the cost of hiring an accountant, allowing you to ensure that your books are always in order without the high costs.
Holding costs are any expenses incurred related to buying land before starting construction. If you have invested in land intending to build on it in the future, you will need to pay interest on both the land and on each phase of construction. These costs are necessary to ‘hold’ the land and they can rack up over time but can be claimed as tax deductions. This is one of the biggest opportunities to benefit from tax-deductible expenses so be sure to do your research to find out what you can claim for.
Purchasing your first investment property is an exciting time for any budding investor. However, before you jump in and buy a property, it’s important to understand your tax obligations and what you can claim in tax deductions. Taking the time to read up on what expenses you can claim for will help you to reduce your taxable incomes and increase your bottom line at the end of the financial year. With this extra capital, you can continue growing your property portfolio and progress successfully in the property investment world with confidence.