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Top 10 tips to help rental property owners avoid common tax mistakes

Save time and money by avoiding the following common tax mistakes:

1. Getting initial repairs and capital improvements right

You can’t claim an immediate deduction for:

– Initial repairs on damage existing when you bought the property

– Improvements you make to the property

– Damaged items that are detached from the house and cost more than $300

2. Claiming interest on your loan

You can claim interest incurred on the amount borrowed as a deduction if you take out a loan for the rental property.  Only the interest that relates to the rental property can be claimed.

3. Claiming borrowing expenses

If the borrowing expenses are over $100 the deduction is spread over 5 years.  If they are $100 and under, you can claim the full amount in the same income year you incurred the expense.

4. Claiming purchase costs

You cannot claim deductions for the cost of buying your property.  Purchase costs are used when working out if you need to pay capital gains tax.

5. Getting construction costs right

You can claim certain building costs, including extensions, alterations, and structural improvements as capital works deductions.   Where your property was previously owned by someone else and they claimed capital works deductions, ask them to provide you with the details so you can correctly calculate the deduction you’re entitled to claim.

6. Claiming body corporate fees and charges

These are deductible in full in the year you incur them.

7. Apportioning expenses and income for co-owned properties

If the rental property is owned with someone else, you must declare rental income and claim expenses accordingly to your legal ownership of the property.

8. Apportioning deductions for private use of your property

You must ensure that any deductions you claim are limited to the periods you can directly connect to earning assessable income.

9. Keeping the right records

You must have evidence of all rental property income and expenses to claim a deduction.

10. Getting your capital gains right when selling

When you sell your rental property, you may make a capital gain or a capital loss. Generally, this is the difference between:

  • what it cost you to buy and improve the property
  • what you receive when you sell it.

Don’t include amounts already claimed as a deduction against rental income earned from the property, including depreciation and capital works.

If you make a capital gain, include the gain in your tax return for that income year.

If you make a capital loss, you can carry the loss forward and deduct it from capital gains in later years.

Download a copy of the factsheet on Top 10 tips to help rental property owners avoid common tax mistakes.

For more information go to the ATO website.


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