How To Get The Best Tax Benefits When Renovating Your Investment Property
Properties, like most things, gradually deteriorate over time. This means that after a certain period, your property will require a renovation instead of a repair. If you’re the owner of an investment property, this won’t feel like a win-win situation. After all, a significant renovation means you have to put in time and money and all the while, you won’t be able to offset the costs until work is complete and you can once again get tenants. It isn’t all bad news though, as you might be eligible for certain tax deductions on what you’ve spent.
Renovate Now, Pay Less Tax Later
You may need to consult with an accountant or review the Australian Taxation Office’s stipulations to see what is tax deductible, but certain renovations you can perform on your investment property are tax deductible. This includes renovating the kitchen, replacing or removing carpets, replacing timber structures and frames or replacing window coverings and small outdoor fixtures. Other home improvements worth your while are adding standalone air conditioners and split systems, ovens and cooktops, hot water systems and dishwashers to the property in question. It’s important that you work with a taxation professional though, as the wrong declarations could get you in trouble with the Australian Taxation Office. You can prevent this by investing in an annual depreciation schedule.
How Does It Work?
Every year, an investment property will undergo natural wear and tear, which would impact its ultimate value. The way that this is officially recorded is by creating an annual depreciation schedule, and requesting one could result in your taxable income being reduced.
A quantity surveyor is required to undertake an official inspection of the rental property to evaluate what can be claimed, and they need to an accredited member of The Australian Institute of Quantity Surveyors (AIQS) Code of Practice.
It’s critical that you record everything you’ve spent on your renovations, as this figure will factor into the creation of your schedule – otherwise, an estimation will need to be made that could be less than what you owed. Considering that what you spend on the appreciation schedule is also tax deductible, you have nothing to lose and a significant tax advantage to gain.