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End of year tax planning tips

May 29, 2018

What can I do to prepare for the end of the tax year?

One of the advantages of owning a rental property is the many tax deductions available to investors. The cost of expenses incurred by a landlord including maintenance and repairs, property insurance, accounting fees, and more, can be claimed as legal tax deductions. While the tax rules are mostly favourable to property investors, it is a landlord’s responsibility to take advantage of all available deductions to maximise your 2017/18 tax return and overall investment.

If you haven’t already, consider taking the time to find a qualified accountant who specialises in property to prepare your tax return. Enlisting the services of a professional with an up-to-date knowledge of the tax code is a wise investment. Your local Raine & Horne agent can provide a statement of costs incurred for the tax year, including management fees and any maintenance expenses, and may also be able to recommend a qualified accountant to assist you.

While hiring an accountant is a smart move, it is also advisable for landlords to have a basic understanding of what expenses classify as tax deductions and those that don’t. For example, did you know costs incurred for fixing damage to a bathroom caused by a tenant are deductible? However, if you are fixing damage caused before you purchased the investment, the work would be deemed ‘initial repairs’ and therefore is not claimable.

Understanding the difference between what constitutes a ‘capital improvement’ and a ‘deductible item’ is another easy rule to remember. If a landlord repairs a deck, for example, it is classified as maintenance work and is therefore fully deductible. However, a newly constructed deck is deemed a capital improvement and is subject to depreciation, rather than a straight deduction. Depreciation is the wear and tear on the property, which is typically claimable at 2.5% annually for up to 40 years. It is well worth considering enlisting a specialist quantity surveyor to prepare a “Tax Depreciation Schedule” on your property. Moreover, this expense is also tax deductible.

Another way to make tax time easier is to find a filing system that works for you. Avoid a last-minute rush, and extra accounting fees, by keeping your records and receipts in good order throughout the year. You may even consider using a program that allows you to store your records electronically by scanning receipts with your smartphone. To discuss these and other great tax-time tips, contact your Raine & Horne agent today.