WHAT ARE ALLOWABLE TAX DEDUCTIONS ON MONTHLY PROPERTY RENTAL INCOME?
It is prudent for landlords to be aware of tax deductions on monthly rental income earned from your investment property.. Landlords tax obligations on rental investment properties arise from income and capital gain. The investors tax liability can be reduced by allowable expenses, i.e. revenue expenses from monthly rental income, and capital expenses from capital gains.
While letting your property you will be taxed on the net monthly rental income (profit) that remains after deducting claimable expenses (revenue expenses).
Allowable revenue expenses can be offset against monthly rent received, claimable on your annual tax return. Revenue expenses are for example:
- Home loan interest (only the interest on the loan, not any capital repayments)
- Municipal rates
- Body Corporate Levies
- Property insurance
- Day-to-day maintenance / repairs
- Any service/expense paid which is not recouped from the tenant, e.g. Garden
service, utilities, etc.)
- Agents commission
Capital Expenses can’t be offset against rental i.e. Cost of acquisition (purchase price), and also anything seen as an improvement e.g. Renovations/home improvements which increase the value of the property are capital expenses. On sale of the property capital expenses are deductible from gross sale price prior to calculation of Capital Gains Tax.