It’s almost that time of year again - tax season. If you own property, there are a few tax benefits you can take advantage of.
Whether you’re an owner occupier or an investor, property ownership comes with a few benefits at tax time. Here are six things you need to consider coming into tax time if you have a home loan.
1. Keep track of home office running expenses
If you’re one of the lucky few who get to work from home in their PJs and have a dedicated space in your home that’s your home office, you may be able to claim some big tax deductions. According to the ATO, if you work from home you can claim the work-related proportions of household costs such as:
Heating, cooling and lighting bills
Costs of cleaning your home working area
Depreciation of home office furniture and fittings
Depreciation of office equipment and computers
Costs of repairing home office equipment, furniture and furnishings
Small capital items such as furniture and computer equipment costing less than $300 can be written off in full immediately (they don’t need to be depreciated)
Computer consumables (like printer ink) and stationery
Phone (mobile and/or landline) and internet expenses
If you work solely from home in a dedicated home office you may even be able to claim deductions on your mortgage payments and home insurance.
It’s a good idea to keep track of these throughout the year rather than attempting to work it all out come tax time.
2. Renovations, repairs and home improvements
If you have an investment property, you can generally claim all costs associated with repairs or maintenance, which may include painting, plumbing, fixing electrical appliances, etc are all tax deductible.
If you do more extensive work like renovations or restorations, this is considered capital works expenses and deductions is generally spread over a period of 25-40 years.
3. Mortgage interest costs
If you’re an investor, you can claim a tax deduction for the interest you pay on your mortgage, which is part of the entire investment strategy known as negative gearing.
Negative gearing means the cost of owning an investment property outweighs the rental income it generates.
Here’s an example: let’s assume your rental property earns $20,000 in one year and the expenses of owning the property (loan repayments, body corporate fees, maintenance, etc.) are $25,000. You will have a loss of $5,000 which you can claim as a tax deduction.
The biggest benefit of having a negatively-geared property is the ability to claim tax deductions and reduce your taxable income, which is why so many investors choose this strategy.
4. Renting out a room
Regardless of whether you’re an owner occupier or an investor, you can claim tax deductions if you are renting out a room in your home.
According to the ATO, if you rent out all or part of your home, the rent money you receive is generally regarded as assessable income. This means you:
must declare your rental income in your income tax return
can claim deductions for the associated expenses, such as part or all of the interest on your home loan
may not be entitled to the full main residence exemption from capital gains tax (CGT), meaning you'll have to pay CGT on part of any capital gain made when you sell your home.
If you’re only renting out part of your home, like a bedroom, you can only claim expenses related to renting out that part of the house. This means you need to apportion the expenses based on the floor area of the space you’re renting and add that to a reasonable amount based on their access to common areas.
If you have an investment property you can also claim tax deductions on depreciation, which can include the decline in value to permanent fixtures like carpets, ovens, washing machines, dishwashers, blinds etc as well as the decline in value to the home’s structure.
If you’ve bought a brand new or near-new property depreciation is even more important as brand new items are valued higher and tend to lose their value more quickly - just like a brand new car does.
6. Keep records and receipts
Whether you’re an owner occupier or an investor, there are generous tax benefits you can access at tax time, which is why it’s important to make sure you keep records and receipts throughout the year, rather than playing catch up when it’s time to submit your tax return.
Throughout the financial year, make sure you document your expenses, keep clear records and receipts and don’t forget to speak to you accountant or tax adviser about what tax benefits apply to you. Also, make sure that your income tax returns are lodged with the Australian Taxation Office (ATO).
Income tax calculator