The five most commonly forgotten strategies regarding negative gearing

By Cutcher & Neale Accounting and Financial Services - September 14, 2021

Given that the property market appears to not be slowing down any time soon, maybe it’s time to consider whether you are getting value out of negative gearing?

Given that the property market appears to not be slowing down any time soon, maybe it’s time to consider whether you are getting value out of negative gearing?

The 3 key components to negative gearing are rent, interest and depreciation, however with interest rates so low it is likely most properties now are break even or even a small rental profit so a greater focus on tax deductions is needed.

Our top 5 rental property deductions:

1. Capital Works Deductions:
For properties constructed after 1987 2.5% of the construction costs can be written off – in most cases you will need a quantity surveyor report (the cost is deductible too). Don’t forget that renovations qualify for the 2.5% write off too.

2. Depreciation Deductions:
Fixtures and fittings like carpet, blinds, hot water service can all be depreciated. Once again a quantity surveyors report will assist.

3. 50% Capital Gains Tax Discount:
Don’t forget that properties held for greater than 12 months qualify for a 50% discount of the net capital gain. Keep in mind it’s the date of exchange of contracts that counts, not the date of settlement.

4. Repairs and Maintenance:
Not to be confused with replacement or improvement, for genuine repairs you can claim 100% of the cost. The easiest example of a repair that would be viewed as an improvement is replacing a timber fence with a Colorbond fence. Although the Colorbond fence may be eligible for 2.5% capital works write off.

5. Rates, Taxes and Strata Fees:
You need to be thorough and not miss the simple things, we prefer that the real estate agent that manages the property pay for these as they will then be included on your annual summary.

But be warned, there are things you can’t claim:

   •   Loan repayments (only the interest component).
   •   Personal use of your rental property.
   •   Purchase costs like conveyance fees, stamp duty.
   •   Improvements to the property.
   •   Travel expenses to carry out the inspections.

Gearing strategies can be complex, if you need any assistance, please contact our award winning team.

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