Rental Property Tax Deductions That Landlords Should Not Claim

Experts advised landlords to keep sufficient and correct records of their taxes. Do not over claim deductions.

KEY TAKEAWAYS:

• Rental property owners must keep correct records of their rental incomes and deductions. 
• They must declare all the income they receive from their rental property in their tax return.
• They must declare any expenses that relate to their rental property.

Once more rental property owners or landlords are being advised to have adequate and right records while pronouncing rental income and deductions as the tax office is watching out for real estate claims.

Over 2.2 million Australians hold investment property ventures, and they claim as much as $50 billion in deductions every year. This is more than the $48 billion revealed in rental income, as per the most recent 2018-2019 taxation data from the Australian government.

Back in May 2022, the Australian Tax Office announced the four key areas that will go under specific investigation at tax time this year. Among these areas are property rental income and deductions as well as record-keeping.

Read: ATO Announces Four Areas of Focus for Taxation This Year

Rental Income That Landlords Must Declare

Landlords must declare any expenses associated with their rental property:

• short-term rentals
• renting the property through a sharing platform like AirBNB
• renting part or all of their home (room only)
• formal and domestic arrangements when they rent out to family and friends at less than commercial market rates.

Record-keeping and property rental income and deductions were actually among the focus areas of ATO in the past. They have taken a renewed interest after paying attention to different issues when the pandemic started two years ago.

Dodgy Tax Deductions Landlords Are being Warned Not To Claim

The ATO will examine tax returns and the rental schedules. They’ll also be searching for things like undeclared pay from leasing rooms or homes on a part-time basis because there are landlords who have not been claiming these correctly in the past.

Costs of owning the property are deductible against the income which includes maintenance, repairs, home loan and interest repayments. Tax returns could be complicated if property investors are not declaring correct records. The ATO wants to make sure that the properties were really available for lease, they were on the market, before landlords can start to claim those expenses.

Sometimes, landlords are using their house for themselves. There are also occasions that their friends or family are using the house. Thus, ATO wants to ensure that landlords are claiming expenses that are only associated with any rent.

Property investors who got some help in the form of grants or state government support should also be included in the income tax as a general rule.

Apart from that, property investors and landlords must be cautious of over-claiming when they lease their property out to friends or family at below-market rates. Some landlords lease their property to relatives at lower than market value. It is not acceptable to claim less than market rent as they can only claim up to the amount of rental income they receive.

Another issue is when landlords try to stir up between repairs (which are deductible) and improvements (which are claim depreciation).

“A repair or maintenance is something you can fix up, and you can get a full deduction for the service you paid for. But if it’s going towards a major item replacement such as roofs then it’s going to be part of the improvement. Once you use new materials on a big job that is an improvement.”

Experts warned property investors to be meticulous with their record-keeping as the ATO expands on its audit and investigation. Make sure all the documents and records match up with the claim. Get ready when the ATO hits you up and poses you an inquiry. The tax office has all the answers, they want to check if the records and responses are the same.

Additionally, the ATO looks at short-term letting platforms to verify if these properties are really leased at reasonable rates, as opposed to inflated costs that leave the property vacant.

CONCLUSION:

In particular, the ATO pays more attention to holiday rental income. Landlords should be careful and not overstate deductions.

So, to get legally maximum return on your rental deductions, ask for a property specialist accountant at Success Accounting Group. Our fees are fully deductible that will give you peace of mind through these tricky times!

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