Taxes. We love ‘em, we hate ‘em. We all know that our society wouldn’t stand upright if we didn’t have taxes, which is why we’re happy to pay a bit of tax from our income, assets and product purchases.

That being said, it’s in every individual’s interest to minimise their tax in a legal, reasonable way. What we’re talking about is maximising tax deductions as a real estate investor… not evading tax altogether!

Thankfully, there are plenty of strategies that real estate investors can use to maximise their tax deductions in Australia. Here, the team at Patrick Leo explains some key strategies to achieve this:

Claiming depreciation

While the long-term goal of any investment property is to see a value increase, in the short-term, it’s likely that your property will depreciate due to wear and tear. The Australian Tax Office (ATO) allows real estate investors to claim this depreciation as a deduction on their taxes.

Capital works deduction focuses on the gradually declining condition of your building structure, including roofs, walls and plumbing. Investors can claim tax deductions for capital works over a period of 40 years at a rate of 2.5% per year. 

Declaring associated costs

Every real estate investor should be declaring relevant costs associated with owning an investment property. Expenses that can be claimed on tax include property management fees, maintenance costs, depreciation, bank fees and loan charges, insurance costs, legal costs and land tax. Claiming these on your next tax bill could save you thousands of dollars in tax.

Declaring loan interest

One of the beauties of having a home loan to pay off (we know, it’s a small silver lining but we’ll take it!) is that any interest and loan fees incurred can be claimed on tax. Let’s say you’ve incurred $25,000 in interest on your home loan, and $250 in loan fees – both of these can be claimed on tax.

However, there are a couple of catches for this one. You can’t claim repayments on the principal sum, nor can you claim interest on the entire size of the loan if you refinanced part of that loan for private purposes.

Appliance depreciation

Not only are real estate investors able to claim building depreciation, they’re also able to claim appliance depreciation in line with each asset’s ‘effective life’, which is determined by the ATO. The ATO says that dishwashers, for example, have an effective life of 10 years, and depreciate between 10-20% per year in value, depending on whether your accountant uses Diminishing Value Rate or Prime Cost Rate when deducting your tax.

Need expert advice on buying or managing an investment property? Talk to the specialists at Patrick Leo – Australia’s leading team in sourcing and managing high quality investment property. With over two decades’ experience, our team is here to increase your wealth, independence and happiness.