As a general rule the following costs are deductible in relation to your investment property:
- Council rates – This includes any fees which the Council has charged including garbage fees and general service fees.
- Water rates – This includes quarterly charges as well as water excess fees.
- Insurance – For building, contents and landlords insurance.
- Interest – For both the main loan, which is typically 80% or 90% of the purchase price of the property and the shortfall loan, which is typically borrowed against the equity in your home.
- Travel – Not for pre-purchase expenses or for travel during construction but after the property is rented out.
- Financing costs – E.g., application fees, registration fees, mortgage insurance, search fees, building progress claim fees and other bank related borrowing costs. These however must be written off over 5 years unless they are under $100 where they are 100% deductible.
- Depreciation – Obviously new is better because building depreciation is calculated on the cost it actually took to build the building. Building depreciation is calculated at 2.5% and fittings depreciation is calculated at between 5% – 37.5% depending on the item being depreciated.
- Other Costs – Postage costs, telephone costs and costs in liaising with Agents. Postage costs might include the posting of documents in relation to the daily undertakings of the investment property.
- Land tax – As much as we hate paying this tax at least it is deductible.
- Repairs – Generally small repairs are deductible but larger refurbishments would most likely have to be capitalised and depreciated. There are also rules in relation to initial repairs which limit deductibility when you first purchase a property.
- Strata fees – This is mainly in relation to units although you have to be careful of some sinking fund costs which may need to be capitalised.
It is important to make sure that your record keeping is of a high standard as often clients miss deductions due to their record keeping being poor.