A real estate expert with a real estate portfolio worth $15 million has offered his advice for real estate investors to save big this tax time.
Lloyd Edge of Aus Property Professionals said there are very generous tax deductions for property investors and it’s important to be equipped with the right information and tools to save money this June 30.
“The ATO reports that around eight per cent of Australians own investment property, and it treats those investments like businesses,” said the Sydney property guru.
“It’s important that real estate investors do their research and get their finances in order before tax time, to avoid any potential pitfalls.” he said.
With the ATO announcing that this tax season they will crack down on property investors this financial year, Mr Edge revealed his top five ideas for this tax season.
Lloyd Edge (pictured) of Aus Property Professionals has shared his top five tips to save property investors big this tax time
1. KEEP RECORDS OF EVERYTHING
If you’re investing in a rental property, you’ll need to keep records upfront.
You will need these documents to calculate the expenses that can be deducted and to ensure that you report all rental income on your tax return.
If you are claiming expenses related to items you have purchased for the property, you will need receipts for these.
Your tax accountant should know all the finer details.
Your property manager also plays an important role at tax time and should have provided you with all relevant documents for your property.
2. COMPLETE MAINTENANCE OF THE PROPERTY BEFORE THE EOFY
Necessary maintenance or repairs that you make before the end of the fiscal year are expenses that you can claim earlier.
If you miss the June 30 EOFY deadline, you will have to wait another 12 months to claim this fee.
There are very generous tax deductions for real estate investors and it’s important to be equipped with the right information and the right tools to save money this June 30th.
3. DECLARE ALL YOUR RENTAL INCOME
Property investors must declare all income generated by their property during the financial year.
This includes not only rental income, but also any amount of rental deposit you are entitled to keep, for example, when a tenant does not pay their rent or you incur maintenance costs and receive compensation insurance accordingly.
4. DETERMINE EXACTLY WHAT YOU CAN AND CANNOT CLAIM
Expenses real estate investors may be able to claim at tax time
Mortgage interest – Any interest you pay on top of your investment mortgage is tax deductible, resulting in significant tax savings. You can also claim associated fees for things like home loan servicing and offsetting account fees.
Negative gear – When an investor’s mortgage payments and rental charges exceed their rental income, these short-term losses are generally tax deductible.
Advertising – If you spent money marketing your rental property to find suitable tenants, you can claim it as a deductible. This includes money spent on website listings, print advertising, brochures and photography costs
Repairs and maintenance – It is important not to confuse repairs and maintenance with “property improvements”. Repairs restore damaged items to their original condition, while property improvements increase the value of a property and are therefore treated differently by the ATO.
Not claiming enough or the right expenses can cost homeowners hundreds or even thousands of dollars on their tax returns and hamper their path to financial freedom.
Depending on your personal circumstances, some of the expenses you may be able to claim at tax time include interest on home loans, negative gearing, advertising, and repairs and maintenance.
Other deductions you may be able to claim include asset depreciation, property management and agent fees, insurance (including building, contents, liability and protection insurance income), condominium fees, municipal rates, water bills, property tax, certain legal fees, cleaning, gardening and lawn mowing, gas and electricity, pest control, stationery, travel expenses and mortgage insurance lenders (LMI).
Also, it is important to note that there are some items you can claim during the fiscal year and others are capital expenditures (expenses you incur when buying or selling an investment property).
Capital expenditures, including property transfer fees, appraisal fees and stamp duty, can help reduce the amount of capital gains tax you pay when you sell your property.
5. UNDERSTANDING HOW DAMPENING CAN WORK FOR YOU
A depreciation schedule is a report that describes the decline in value of certain assets of a property, such as carpets, appliances, and equipment.
Appoint a qualified quantity surveyor to produce an amortization schedule for each property you purchase.
You can claim amortization over a period of up to 40 years.
As your portfolio grows, be sure to get these reports all the time, especially for duplexes, as you can get significant depreciation as there are two of everything.
While it’s important to keep taxes in mind when buying a property, you also need to make sure you’re investing in a property for the right reasons.
“I’m not advocating buying an investment property or building a property just because you want to claim depreciation. Tax deductions are a positive outcome, not an investment strategy or a reason to invest. said Mr. Edge.
“But if you leave money on the table, you put yourself at a disadvantage. You can get better returns on new properties, which generally require less maintenance. It is important to think about this when investing.