Paying taxes is a responsibility that Australian citizens have to do to keep our society functioning and healthy. The good thing is that there are specific real estate deductions pertaining to real estate that we have the right to claim.
Here are the top four tax deductions that all homeowners should be aware of. Remember, talk to professionals to determine whether these deductions might apply to you.
Working from Home
Homeowners and renters can claim tax deductions if they work from home. They can potentially claim occupancy expenses (including mortgage interest, land tax and rates and rent), as well as running expenses (such as phone, Internet, utilities and depreciation of equipment). Several factors determine the amount and extent to which you can claim deductions:
- Both occupancy and running expenses can be claimed if the home is being used as a place of business and there is a dedicated work area.
- Running expenses can be claimed if the home is not a place of business but there is a dedicated work area.
- Only running expenses can be claimed if you are working from home but there is no dedicated work space.
Normally, homes are exempt from Capital Gains Tax (CGT) when sold. However, if the residence is used as a home office or to run a business, and depending on the type of deductions you claim, you may not be entitled to the full CGT exemptions. Seek the help of a tax advisor to help you choose the best long-term approach to take.
Mortgage Interest Deductions
You can claim the interest charged on the loan you used to finance the purchase of a rental property. Moreover, the interest paid on loans pertaining to depreciating assets for the rental property and upgrades and repairs done on the rental property can be claimed.
Rental property investors can offset their taxable income with net losses accrued from the rental property through negative gearing. You incur a net rental property loss when the full rental expenses go beyond the gross rental income. Discuss negative gearing with your tax accountant if you want to lower your taxable income.
Rental Property Expense Claims
Aside from the tax benefits from negative gearing, there are other major tax deductions a real estate investor can claim relating to rental properties. Examples include advertising for tenants; travel to inspect properties; council rates; bank charges; maintenance; council rates; real estate agent fees and commissions; and legal expenses. Check out the ATO website to see a complete list of deductions.
ONE of the things you should never forget is to keep your records. Under ATO rules, Australians must do this for five years. This would legitimise your income deductions and keep you out of trouble when the taxman comes to visit.