3 Common Mistakes Made By Rental Owners
It’s easy to make mistakes when it comes to managing your rental property finances. Here are the three most common mistakes made by rental property owners:
#1 Forgetting to keep financial records for at least five years after the property is sold
Did you know you must have evidence of your income and expenses over the period you own the property and for five years from the date you sell the property?
Many people don’t – so keep this in mind. Records are important.
#2 Not renting the property
Your property must be genuinely available for rent in order to claim a tax deduction. This means that you must be able to show a clear intention to rent the property by advertising the property through reasonable outlets (e.g. newspaper or internet).
You must also set the price of the rent at a market rate, that is, in line with similar properties in the area.
And last but not least, it is advised that you keep your property in a reasonable rental condition – as failure to rent your property due to the condition is not acceptable.
#3 Claiming expenses at the wrong time
Did you know you can’t claim initial repairs or improvements as an immediate deduction in the same income year you incurred the expense?
Initial Repairs
Repairs must relate directly to wear and tear or other damage that happened as a result of you renting out the property. Initial repairs for damage that existed when the property was purchased, such as replacing broken light fittings are not immediately deductible. Instead, these costs are used to work out your profit when you sell the property.
Ongoing Maintenance
Ongoing repairs that relate directly to wear and tear or other damage that happened as a result of you renting out the property such as fixing the hot water system are classified as a repair and can be claimed in full in the same income year you incurred the expense.
Replacements / Improvements
Replacing an entire structure like a roof when only part of it is damaged or renovating a bathroom is classified as an improvement and not immediately deductible. These are building costs which you can claim at 2.5% each year for 40 years from the date of completion.
If you completely replace a damaged item that is detachable from the house and it costs more than $300 (e.g. replacing the entire hot water system) the cost must be also be depreciated over several years.
We hope this quick list offers some insight into managing your investment property, however, if you have any questions about this information please call us – we’re more than happy to help.
Torquay (03) 5261 2262
Winchelsea (03) 5267 2673
