Category: Rental Property Investors | Blog

Rental property income is the complete amount of rent and associated payments that you receive when you rent out your property.  Rent and associated payments may be in the form of goods and services. You can claim a deduction for certain expenses you incur for the period your property is rented or is available for rent. However, you cannot claim expenses of a capital nature or private nature.

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Archive for the Rental Property Investors | Blog category

Travel Expenses as Tax Deductions on a Rental Property

Do you live across the country from your rental property or just around the corner?

If you bought a rental property as a money maker and manage it yourself, there will be times when you will need to pay your income earner a visit. It could only be once a year for an annual inspection, or you could be taking weekly trips to tend to the landscaping. You may use your car to get there or hail a cab but, either way, you will tab up some travel expenses. The good news is that these expenses are deductible against any income, rental or otherwise, you received during the financial year.

 

When can I claim travel expenses?

Let’s take a closer look at the times when you can (and can’t) claim travel expenses as tax deductions.

You can claim a deduction for travel to and from your rental property if the main purpose of the trip was to inspect and maintain the property. In other words, work on the property has to be the primary reason for the trip; any thought of combining expenses specific to your rental property with others not so related should be set aside.

However, you can also claim the cost of overnight accommodation and meals if:

  • the property you own happens to be far away from your home (like an apartment in Mermaid Beach while living in Melbourne), OR
  • it would be unreasonable to expect you not to stay near the rental property overnight when conducting an inspection

 

 

So, can I claim a deduction if I travel for property maintenance AND vacation?

Let’s say you are planning on vacationing at a resort in Bondi Beach for 5 days. You live in Melbourne and own a rental property close to the resort that you’re staying at. You figure to conduct your annual inspection on the one day you could spare from your busy sun tanning schedule. On that day, you take a taxi from the resort to your property. Here’s how it works tax-wise:

  • You cannot claim your expenses for traveling from Melbourne to Bondi and back but you can deduct your taxicab fare for getting from the resort to your property and the one day of accommodation (20% of your resort cost) that you spent at your property.

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Legal Fees as Tax Deductions on a Rental Property

Watch out for those legal fees!

A rental property can be a great source of income, but it does come with some risks. What if your tenants decide to leave mid-lease, for instance? Maybe they stop paying their rent outright? You may have to hire an attorney and take your ex-tenants to court for your loss of rental income.

Here’s some relief: most of these attorney fees can be claimed on your tax return as deductions. These deductions can help you get more tax back.

 

What legal fees are tax deductible?

You can generally justify claiming any legal expenses that directly relate to a dispute between yourself and your tenant(s). Legal costs you can claim are as follows:

  • expenses incurred in the eviction of a non-paying tenant
  • expenses incurred in taking court action for loss of rental income
  • expenses incurred when defending a damages claim in respect of injuries suffered by a third party on your rental property

 

Let’s take a look at an example:

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Claiming Rental Expenses as Tax Deductions

Are you thinking of investing in a rental property?

What do you have in mind? Do you plan to move in and live in it for a bit? Or do you want to rent it outright and start earning income from it? Before you dream of an ever-growing pile of cash, there are several things you should keep in mind from a tax perspective.

First, you should know that any income you earn from renting your property is taxable income. Second, upkeeping your property is bound to accumulate costs and fees. Third (and this is the good news), most of these necessary expenses are in fact tax deductible.

There are two instances when these rental expenses can be claimed as tax deductions:

  1. the expenses incur while your property is on the market to be rented, or
  2. the expenses incur while your property is being rented out

These can tremendously reduce your tax bill. You don’t want to miss out on any of them.

 

Flexible vs fixed rental expenses

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Rental Property Deductions

Claiming these expenses could save landlords a ton at tax time

If you own an investment property, you may be able to reduce your tax burden by claiming a tax deduction for various expenses.

For the following expenses you can receive an immediate deduction for the same income year in which you incurred the expenses:

  • advertising for tenants
  • bank changes
  • body corporate fees – such as those incurred to cover the cost of day-to-day administration and maintenance or applied to a special purpose fund
  • cleaning
  • council rates
  • electricity and gas
  • gardening and lawn mowing
  • in-house audio and video service charges
  • insurance – for the building, contents, and public liability
  • interest on loans – for the purposes of purchasing rental property Read the rest of this entry »