Rental Interest Deductions | Online Tax

Yes you can deduct any interest from your rental property income.  Interest on property loans is the big ticket item when investing in rental properties.  If you take out a loan to purchase a rental property, you can claim a deduction for the interest charged on the loan or a portion of the interest when the loan is also used for other purposes or the rental property is used for private reasons for some time during the year. 

You cannot deduct the repayments in full unless your loan is "Interest only".

It’s important to note that you cannot deduct any payments that go towards the principal balance of the mortgage.  Most property loans are principle and interest loans.  Your repayments are calculated to include the completion of your loan, in full, in 20 or 30 years time.  Included in that repayment will be an amount that goes to reduce the Principal value of the loan.  That principal component is not tax deductible.  Check your statements or ask your funder to provide the interest they have charged you in a financial year.  The repayments on "interest only" loans are of course totally deductible, as there is no principal reduction on the loan occurring.

Rental Loan Example

Let’s consider an example. Suppose you have a rental property for which you’ve taken out a loan of $500,000 at an interest rate of 5%. This means you’re paying $25,000 in interest per year. You can claim this entire amount as a deduction on your tax return, reducing your taxable income significantly.

Borrowing Costs

In addition to the interest, borrowing expenses are also tax deductible if they are incurred to obtain the loan you are using for your rental property. These expenses include loan establishment fees, lender’s mortgage insurance, title search fees charged by your lender, costs for preparing and filing mortgage documents, and mortgage broker fees. If your total deductible borrowing expenses are more than $100, you spread the deduction over the shorter of either: 5 years or the term of the loan.

Deduction Grabber

Keeping track of all these expenses and deductions can be a daunting task. That’s where tools like “Deduction Grabber” come in handy. This app helps you keep track of all your expenses and deductions in one place, making it easier to manage your finances and prepare for tax time.

eCashbooks

Have more than one rental property and finding it hard to record transactions for each.  Consider eCashbooks to keep on eye on them for you.  

Finally, when it’s time to file your tax return, you can visit www.gotax.com.au. It’s a user-friendly platform that makes lodging your income tax return online a breeze. With all your deductions at your fingertips thanks to “Deduction Grabber”, you’ll be well-prepared to get the most out of your tax return.

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The most common deductions for Rental Properties

• Council & Water Rates deductions
• Property Management Fees
• Insurance
• Repairs and Maintenance
• Depreciation of assets
• Interest

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