6 Essential Tax Management Tips for Property Investors

Being diligent and managing a property in a meticulous and calculated way pays off big time. From better landlord-tenant communication, to increased property popularity, all the way to the numerous deductions you can claim for your rental, there are numerous benefits to running a tight ship and being in the know at all times. This is especially true if you’re looking to minimize financial expenditure and refinance some of the lost capital.

When all of it adds up in the end, it will make for a hefty sum of money, so don’t dismiss the idea of making claims for tax-deductible features and assets as they might help you turn your rental business around. Let’s take a look at the six essential tax management tips that will allow you to build a solvent property investment portfolio.

Deduct the landlord insurance premium

You might have not been aware of it, but your landlord insurance is tax-deductible, and you can claim it in your tax return. The majority of novice property investors and landlords are not aware of this benefit even though the average landlord insurance premium can be 20 to 30% more expensive than the homeowner insurance policy.

With so much money involved, it’s important to know what you can deduct from your taxes. While you’re filing your claim, take the time to reevaluate your insurance policy, and check whether or not you have the proper amount of coverage. Don’t forget to scrutinize your general house insurance policy as well, in order to ensure you have the coverage needed to rebuild and repair the property in case of a natural disaster and similar scenarios.

Tax-deductible manager’s fee

Property managers are becoming increasingly popular in the real estate world, as they offer a level of experience and expertise that can help you manage a property efficiently and effectively without actually having to be there or deal with any issues yourself. Acting as a mediator between you and the tenants, your property manager will be responsible for keeping you and your tenants happy.

That said, not many property investors realize that they can claim their property manager’s fee from their tax return. That’s right, this expense is deductible as well. Make sure your property manager assists you in compiling the necessary reports and financial statements needed to make a successful claim.

Tax depreciation schedule

Simply put, depreciation is when an asset (the property) loses value over time due to wear and tear. Certain assets found in this property are also eligible for depreciation claims. This is called a tax depreciation schedule and it can help you fuel your revenue stream on an annual basis by claiming up to 2.5% of the property’s value each year.

The tax depreciation schedule has two key categories: capital allowances and plant & equipment items. Capital allowances allow you to claim depreciation on your residential property, based on its historical construction cost. This includes renovations and additions. On the other hand, plant & equipment items constitute the depreciation claims on loose assets such as hot water systems and bathroom accessories, security systems, air conditioning units and many more.

Reduce operational costs for your home office

As a property investor, you might very well be managing your business from a home office. If that’s the case, you might be eligible for claims on certain assets you’ve procured for your office. The total amount of the claim might not seem like much, but every penny counts when you’re trying to run a solvent business.

Be sure to sit down with your accountant in order to determine which assets can be claimed on. These usually include, network systems such as phones and internet, utilities such as water, electricity, and gas, as well as furniture and tech. You might be also able to claim depreciation on the furniture and fittings in your office.

Claim interest charges on the loan

Did you know that the interest charges on your mortgage are tax-deductible? Provided that your property is generating income, you can not only claim mortgage interest charges, but you can also claim interest fees on “auxiliary” loans used to procure additional property assets, obtain land intended for construction, and of course, any repairs and renovations. You will need to keep a clear record in order to achieve this, though, so make sure to consult with your financial advisor.

Cut income tax with negative gearing

Negative gearing, also known as net rental loss, simply means that your rental property is failing to generate enough income to cover the running expenses of the property and the interest fees of your lender. You can use negative gearing to reduce your tax fees thus alleviate some of the pressure off of the income stream you do have.

Property investment is a sound way to build an affluent career in the real estate industry, however, it’s important to explore every avenue when it comes to financial management and monetary savings if you are to improve your chances of success. Keep these tax management tips in mind when filing your taxes and you will have an easier time running a solvent rental business as a landlord and a property investor.

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Mike Johnston is a home improvement and business blogger from Sydney. He is a regular writer at Smooth Decorator and contributor on many other financial, real estate and lifestyle blogs. Mike’s goal is to create and share meaningful content that helps and inspires people.

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