Top 4 tax deductions for homeowners

Whether you’re a homeowner, property investor or even renter, your home can provide effective and legitimate tax deductions that will greatly ease the pain at tax time.

Paying tax is an important part we all play in supporting a functioning and healthy society. That being said, there are specific tax deductions relating to real estate that you should be claiming. Read on for our top four tax deductions all homeowners should know about and as always, seek professional advice if you think these might apply to your situation!

1. Working from home

Tax deductions relating to working from home apply to both homeowners and renters. Occupancy expenses (including rent, mortgage interest, land tax and rates), along with running expenses (such as phone, internet, heating, lighting and depreciation of equipment) can potentially be claimed. The amount and extent to which you can claim deductions depends on a number of factors:

• If your home is your place of business and you have a dedicated work area, you can claim both occupancy and running expenses.
• When your home is not your place of business but you have a dedicated work area, you can only claim running expenses.
• If you work at home but there is no dedicated work area, only running expenses can be claimed.

Residences are normally exempt from Capital Gains Tax (CGT) when sold, but if you work or run a business from home, and depending on the nature of the deductions you claim, you may not receive the full CGT exemption. Talk to your tax advisor to work out which approach will best suit you in the long run.

2. Mortgage interest deductions

When it comes to purchasing a rental property you can claim the interest charged on your loan. Additionally, you can claim interest paid on loans relating to depreciating assets for the rental property, and renovations and repairs to the rental property.

3. Negative gearing

Negative gearing allows rental property investors to offset their taxable income with net losses made on a rental property. A net rental property loss occurs when the total rental expenses exceed the gross rental income. It is worth discussing negative gearing with your tax accountant if you are looking to reduce your taxable income.

4. Rental property expense claims

Along with the tax benefits provided by negative gearing, there are other key tax deductions a property investor can claim when it comes to rental properties. These include: advertising for tenants; council rates; land tax; bank charges; maintenance; travel to inspect properties; property agent fees and commissions; and legal expenses. For a complete list of deductions head to the ATO website.

One of the most important things to remember is to keep your records! The ATO requires you to do this for five years, to legitimise your income deductions and keep you out of hot water if you’re audited.