Rental Property Traps for the Unaware

Owning a rental property can be a rewarding investment, but knowing the tax aspect can get tricky. Many property owners fall into common traps due to misconceptions about what can and cannot be claimed. This guide will highlight some of the most frequent pitfalls, especially concerning travel expenses, depreciation, and other deductions.

Common Misconceptions About Rental Property Deductions

1. Travel Expenses: A common misconception is that all travel expenses related to your rental property are deductible. However, since July 1, 2017, individual landlords cannot claim deductions for travel expenses incurred to inspect, maintain, or collect rent for a residential rental property. Only certain entities, like companies or trusts, may be eligible.

2. Depreciation on Existing Plant and Equipment: Many landlords mistakenly believe they can claim depreciation on all assets within their rental property. For properties purchased after May 9, 2017, you cannot claim depreciation on existing plant and equipment. Only new assets you purchase for the property are eligible for depreciation deductions.

3. Initial Repairs: Some property owners assume that all repair costs are immediately deductible. However, repairs to fix damage or defects that existed at the time of purchase are considered capital improvements and are not deductible. These costs can only be claimed as part of the property's cost base for capital gains tax purposes.

4. Personal Use of Property: If you use your rental property for personal holidays or let friends stay rent-free, you cannot claim deductions for expenses incurred during these periods. Deductions must be proportioned based on the time the property is genuinely available for rent.

5. Incorrect Apportionment of Expenses: Deductions must be apportioned correctly if only part of the expense relates to the rental property. For example, if you have a phone line used for both personal and rental property purposes, only the portion related to rental activities can be claimed.

Avoiding Deduction Pitfalls

• Keep Accurate Records: Maintain detailed records of all income and expenses related to your rental property. This includes invoices, receipts, and any correspondence with tenants or property managers.

• Understand the Rules: Stay informed about the latest tax laws and rulings. The Australian Taxation Office (ATO) frequently updates guidelines, and being aware of these changes can prevent costly mistakes.

• Consult a Gotax Professional: If you're unsure about what you can claim, consult with a gotax professional or accountant who specialises in rental properties. They can provide tailored advice and ensure you comply with all regulations.

Gotax Deduction Grabber App

To efficiently manage your tax records and avoid common pitfalls, consider using the Gotax Deduction Grabber App. This app includes all the logbooks and tax expense recording systems you need to manage your tax deductions throughout the year. Download the app by scanning the QR code and streamline your tax return process.

Gotax Tax Advice

Regularly review your rental property strategy and tax position with a Gotax professional. This proactive approach can help you identify potential traps and optimise your tax return.

For more insights and to explore Australia's easiest, cheapest, and smartest online tax service, visit www.gotax.com.au.

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Be Aware: Tax law and interpretations of that law change on a frequent basis. This article is good at the time of writing. Always seek updated content when making decisions on Tax Deductions.