Holding investment property can reduce an investor’s income taxes when certain investment-related expenses are deducted from his or her income. Expenses related to the maintenance of the rental property are generally deducted from the investor’s gross income. When allowed as tax deductions, the amounts claimed will reduce the total taxable income and reduce the investor’s tax bill. The Australian Tax Office allows only specific expenses as investment property tax deductions. These require proper recording and record keeping to justify the expense.

Investment Property Tax Deductions

Depreciation: Appliances and furnishings used in the rental property premises experience normal wear and tear over a period of time. Gradual deterioration reduces the value of these items, which is quantified as depreciation. Depreciation does not involve an actual cash expense, but it does have the effect of freeing up some cash when it is deducted from the investor’s income.

Borrowing expenses: These refer to the costs related to borrowing money used to purchase property. Deductible loan expenses include mortgage insurance, title search fees, mortgage registration, mortgage stamp duty, and loan origination fees.

Commissions and management expenses: These costs correspond to the fees paid to the agents responsible for renting the property. It is often expressed as a percentage of the rental rate.

Sure: These include building insurance, contents insurance, liability insurance, and homeowner’s insurance that insures the investor against default rent. Mortgage insurance is deductible but not all at once and is generally amortized over the term of the loan as part of the loan expense.

Landscaping and landscaping work: Expenses related to the maintenance of the rental property are deductible and include dumping fees, lawn mower expenses, tree trimming, replacement garden tools, fertilizers, sprays, and replacement plants.

Interest expenses: Interest payments made on a loan used to buy, build, improve, or repair property for income purposes are deductible.

Repair: These may only be deducted when the investor can demonstrate that the expenses were incurred to restore the property to its previous condition without changing its essential character. Some examples are the costs of repainting, cleaning, and other restoration work.

Telephone and travel expenses: These expenses are deductible from income when used for rent collection, repairs, inspections, and preparing the property for new tenants.

Other expenses that can be claimed as investment property tax deductions include rental expenses, cleaning, electricity and gas expenses, land taxes, legal and management fees, office supplies, pest control and council fees, of water and sewage.