Is your Investment Property Set up to Save you at Tax Time?

Is your Investment Property Set up to Save you at Tax Time?

If you are a property investor, filing a tax return is one of your prime concerns. When doing so, you have the option to itemise your deductions. You will have the best chance of benefitting the most from your income tax return if you know the items that are deemed deductible.

Once your real estate property starts making money through rent, there are items that you can list as deductibles when filing your tax return. These deductibles include interest, accounting fees, real estate tax, insurance, property agent fees and commissions, advertising, bad debts, depreciation, utility costs, security, repairs and cleaning.

Non-Deductible

The cost of buying your rental property investment is considered a capital expense and it is not among the tax-deductible items. This cost may include property agent commission, conveyance costs and legal fees.

Rental Property Expenses

Some of the more important items you should remember when itemising tax deductibles include the costs incurred when running the rental property. These costs should include advertising costs, provided that the advertising is intended to get a tenant for the property. This should be differentiated from advertising costs when selling the property. If it is being sold, then it becomes a capital expense.

You can also include property management fees and commission as deductible items. Other rental property expenses you can add to your deductibles are building insurance, including public liability and landlord insurance premiums, legal expenses, costs incurred in preparation and registration of the lease, and electricity and gas costs. In case not all of your property is being rented, only the rented area will be subject to electricity and gas expense deductibles.

Maintenance Costs

You can include repairs and maintenance costs incurred during the duration of the tenancy. There are special rules about inclusion of this deductible item, however. For instance, you cannot include repair costs incurred during the first year after the property was bought.

Other maintenance costs you can include in your deductibles include pest control expenses, including the hiring of professional pest control services or the purchase of pest products. The deductibles can also include janitorial costs, tree removals, tree lopping services or gardening services.

Depreciation

Depreciation is another important item you can include in the deductibles. This will be based on a depreciation schedule for furniture and other assets in the rental property.

It pays to know the different items you can include as tax deductibles. Pay attention to the details and you can get the best benefit possible.