Investment property tax deductions are an important way to maximise your tax savings or tax returns, but it is important to only claim the deductions you are entitled to by law.
I have listed 5 investment property tax deductions that you shouldn’t claim and in almost all cases it will not be legal to claim these as property expenses.
Disclaimer: This is for educational purposes only. Always speak to your accountant.
Investment Property Tax Deductions You Shouldn’t Claim
Investment property tax deductions can be very confusing and can be very hard to understand exactly what tax deductions you can claim and what you can’t claim.
A. Acquisition costs of the property
When you’re purchasing the property you’re paying things like stamp duty. You can’t really claim that as a tax deduction, so speak to your accountant about that.
B. Disposal costs of the property
When you’re selling your property and you got to pay duties or tax or whatever on that then that may not be claimable as well.
Now when you’re selling your property some of the expenses associated with selling it, like your real estate agent commissions may be a tax deduction against the capital gains tax. But you do need to speak to a qualified accountant about claiming that.
C. Expenses You Didn’t Pay For
You cannot claim expenses you did not pay for. A great example of this is utilities.
Let’s say you’re paying for water but you don’t have gas and the tenant is paying for electricity. You can’t claim electricity if the tenant’s paying for it but you can claim the water if you’re paying for it.
But if the tenant’s paying for all three (electricity, water and gas) you can’t claim that, because it’s not your expense that’s the tenant’s expense.
D. Expenses Unrelated To The ‘Rental’ Of The Property
If you have a situation where you own a holiday house that you rent out but you go and stay in the property yourself (maybe for a week) then costs associated with you staying in a property and using a private purpose are not tax deductible expenses.
Maybe there is cleaning up you need to pay for after you’ve gone. You can’t claim those because it’s for private use not income generating use.
E. Borrow Expenses For Private Purposes
We covered this when we discussed interest rates but interest is not interest is not interest. It is the purpose of the interest that determines whether it’s tax deductible or not.
If the purpose of the interest is for investment purposes and growing your income then it should be tax-deductible but if the purpose of your interest is private uses, buying a new car, going on a holiday then it’s most likely not going to be tax-deductible.
It is important to note that depreciation is a very important expense to get right. It can be very confusing doing it yourself so I do recommend getting a quantity surveyor in to create a report for you. Here is more information on investment property depreciation.