Preparing Your Property for Tax Time: Top 7 Tips for Homeowners and Investors!
Preparing Your Property for Tax Time: Top 7 Tips for Homeowners and Investors
Tax time can be stressful for homeowners, whether you have one house or are an investor with multiple properties.
Property owners can take advantage of several tax benefits when filing. However, you must prepare and stay organised to enjoy all these benefits (and ensure you abide by all of the country’s tax laws).
Below are seven essential tax preparation tips for homeowners and investors.
1. Maintain Accurate Records
Maintaining accurate and detailed records throughout the year makes it much easier to navigate tax season and avoid overlooking anything important.
What kinds of records should you be keeping? Start with those related to the following:
● Capital Costs (conveyancing costs, stamp duty, legal fees, search fees, buyers' agency fees, expenses related to borrowing money from the bank, mortgage insurance)
● Property Maintenance Costs (loan interest, property manager fees, council fees, body corporate fees, insurance costs, advertising costs, bank charges, garden maintenance)
Capital costs cannot be deducted from your rental or other income. However, when you sell your property, they will reduce capital gains taxes (more on those later).
If you rent out one of your properties, you can deduct the property maintenance costs from the rent received from your tenants, lowering your taxable income.
2. Track Deductible Expenses
Speaking of deductions, both homeowners and property investors can deduct several expenses from their yearly taxes.
The following are some examples of tax deductions for homeowners:
● Work from home/home office deductions (interest payments, home insurance, maintenance costs like cleaning, equipment costs)
● Running expenses (phone, internet, utility bills)
● Mortgage interest costs
Property investors have even more tax deductions available to them, including these:
● Property management and maintenance expenses (advertising for tenants, body corporate fees, strata title fees, cleaning fees, gardening and lawn mowing, pest control, security patrol fees)
● Rates and taxes (water rates, charges, and usage; council rates; land tax)
● Property agent fees (fees and commissions, postage, statement fees, bank charges, lease document fees, letting fees)
● Administration expenses (stationery, property management-related phone and internet usage, legal costs for debt collection or tenant issues, gas and electricity bills)
● Property insurance (for landlords, buildings, building contents, and public liability)
● Repairs and maintenance (plumbing, electrical, handyman fees)
● Home loan interest
● Property investment seminars/training
Remember that careful record-keeping makes tracking and applying these deductions to your taxes much more manageable.
3. Factor in Capital Improvements
Some homeowners and property investors need clarification on the difference between repairs and capital improvements.
Repairs are meant to maintain your property and keep it as close to its original condition as possible. Capital improvements are intended to enhance your property and make it better than when you originally purchased it.
You can deduct the cost of repairs and maintenance from your yearly taxes (if you’re a property investor). However, you can’t do the same for improvements like renovations or additions. Instead, those updates will reduce your capital gains tax when you sell the property.
It’s imperative to keep detailed records regarding capital improvements. You might not sell your home for another ten years, but if you have those records ready, it’ll be much easier to factor them in.
4. Consider Rental Income and Expenses
If you rent out your investment property, you can deduct many of the expenses used to maintain it and manage your rental business (including all those listed in section two).
Remember that you must also accurately report all income generated from your rental property (whether it’s a short-term rental, retained through a sharing platform, or just renting out one room) to be taxed accurately.
Tax rates for rental income are as follows:
● $0-18,200: Nil
● $18,201-$45,000: 19c for every $1 over $18,200
● $45,001-$120,000: $5,092 + 32.5c for every $1 over $45,000
● $120,001-$180,000: $29,467 + 37c for every $1 over $120,000
● $180,001 and up: $51,667 + 45c for every $1 over $180,000
An accountant or real estate investment professional can help you review your income and ensure you report it correctly.
5. Include Depreciation and Capital Gains
Depreciation is a tax break that helps you offset your property’s decline in value from your taxable income.
If you haven’t already, contact a quantity surveyor for a depreciation schedule on your property. It will help you understand the rate at which your property value declines and the deductions you can claim.
Capital gains tax (CGT) is reported on your income taxes and paid on the profits you receive from selling assets like property. If you own an asset for over 12 months, you can experience a capital gains tax discount of 50%.
Generally, your primary residence is exempt from the capital gains tax. Still, CGT may apply in certain situations, such as renting out part of the home or using it for your business.
6. Optimise Superannuation Contributions
Superannuation contributions are funds paid into a retirement account. Some superannuation contributions can benefit you as a property owner and as a retiree.
For example, if you decide to sell your property and are over 65, you can contribute a portion of the profits to your retirement fund (up to $300,000 per person).
Furthermore, if you sell an asset and have to pay capital gains tax, you can contribute some or all of the money to your retirement account. By doing so, you claim it as a tax deduction, which can reduce or eliminate the capital gains tax owed.
7. Seek Professional Assistance
Australian tax regulations are already quite complicated. However, they get even trickier when you own a home or multiple homes.
Working with a tax professional or accountant can help you navigate these waters, remain legally compliant, and maximise your tax benefits.
Partnering with a property management company can also simplify the documentation process and ensure you have access to relevant information during tax season.
Conclusion
It’s not too early to start planning for tax season -- it will be here before you know it! Remember the tips discussed above to minimise stress and experience all the tax benefits of property ownership.
Interested in a professional opinion on tax prep for property owners? The Champions in Real Estate team is here for you.
Reach out today to learn more about our services for homeowners and investors.
