Have you invested in real estate to secure your financial future and build your wealth?
If so, you may not realise it, but there are plenty of things you can claim this tax time. So, if you want to maximise your tax refund, it is important to know what you can claim and what you can't.
Before you file your tax return
There are some steps that you can take after you purchase a property to help you prepare for tax time. These tips put you in the best position when it comes time to claim your investment income.
- If you have made a substantial amount of income this year, it may be a good idea to prepay the interest on your rental property for next year in order to reduce your current income. You may be able to get into a lower tax bracket by doing this.
- Maintain ownership of your property for a minimum of 12 months to keep capital gains tax down.
- If you plan on renting the property out, put the property up for rent as soon as possible after you make the purchase. The amount of expenses that you can deduct in relation to your investment is partially determined by whether or not your property has been available for rent.
Accounting for rental income
Rent that you receive from the tenants in your property counts as income for tax purposes. If you own a property with another investor, you will have to claim the amount of rent received that is proportional to your ownership of the property. For example, if you rent out a house at $2,000 per month and own 20 percent of the property. You will need to claim $4,800 of income on your taxes for the year.
Any rental income that you claim on your taxes should adhere to the normal market rates in the area in which your property is located. You are required to claim your rental income in the year during which you receive the income.
Claiming Property Expenses
Claiming expenses related to property investment can reduce the amount that you owe in taxes. However, it is important for you to be sure that you are legally allowed to deduct certain expenses before you claim them on your tax return.
Expenses that can be claimed include:
- Charges and fees associated with borrowing to purchase the property
- Mortgage interest
- Cleaning and maintenance fees
- Pest control
- Property repairs
- Travel associated with the inspection of a property or collection of rent
- Some utility expenses
This is a non-exhaustive list. To make sure you have your best financial foot forward at tax time, consult with an accounting professional before claiming any expense related to property investment.