Owning an investment property comes with a range of tax perks, even if the property isn’t turning a profit straight away. Investment property tax benefits can help you reduce your taxable income and make your investment more profitable. Here are six key tax benefits every property investor should know about:
Negative Gearing
Negative gearing happens when your property’s expenses, like mortgage repayments and maintenance costs, outweigh the rental income it brings in. While it may seem like a negative cash flow is a bad thing, it can actually work to your advantage at tax time. This is one of the most well-known investment property tax benefits because the loss can be claimed as a deduction to reduce your taxable income, meaning you could pay less tax overall.
Capital Gains Tax (CGT) Exemptions
When you sell an investment property, you’ll likely make a profit (a capital gain). That profit is added to your taxable income for the year and taxed accordingly. However, there are exemptions and discounts available, especially if you’ve owned the property for over 12 months. These investment property tax benefits can significantly reduce your CGT bill and keep more of your earnings in your pocket.
Claiming Interest on Your Mortgage
The interest charged on your investment property loan is considered a tax-deductible expense. Essentially, it’s a cost associated with generating rental income. By claiming the interest as a deduction, you can reduce your taxable income, which is one of the key investment property tax benefits that helps you save money year after year.
Tax-Free Equity Loan Withdrawals
If your property’s value increases, you can tap into that equity without selling by taking out a home equity loan. Whether you use the funds for another property or an investment opportunity, the withdrawals are tax-free. Why? Because borrowing against your property isn’t considered income, meaning no tax is payable. This unique option is a lesser-known part of investment property tax benefits that savvy investors should consider.
Small Deductible Expenses
Every little expense adds up, and the good news is that many of them are tax-deductible. Things like council rates, land tax, strata fees, insurance, and even bookkeeping or legal costs can be claimed. Don’t overlook these investment property tax benefits—they could amount to thousands of dollars saved each year, making a big difference to your bottom line.
Depreciation
As your property ages, its structure and the items within it (like appliances or carpets) naturally wear out. The Australian Taxation Office (ATO) lets you claim this depreciation as a tax deduction. This is one of the most valuable investment property tax benefits, allowing you to maximise your deductions and reduce your taxable income, even for a property that is not cash-flow positive.
These tax benefits are just some of the ways property investors can make the most out of their investment. Always chat with a tax professional to make sure you’re claiming everything you’re entitled to, after all, every dollar saved is a step closer to building wealth through property!
For more information on how tax depreciation can help you maximize your investment property returns, visit BMT Tax Depreciation. Their expert team provides detailed insights and tailored depreciation schedules to help you unlock significant tax savings.
And finally, if you’re a landlord with questions about managing your property, don’t forget to check out our Landlord FAQs page. It’s packed with answers to the most common questions we hear from landlords, covering everything from tenant selection to property maintenance and legal requirements.
