The money 3 out of 5 investors aren't making the most of

When it comes to property investing, every dollar counts. But too many investors just aren’t aware of how they can maximise their money and are potentially missing out on thousands of dollars in their tax returns.

New research from non-bank lender State Custodians, which commissioned Galaxy Research to survey more than 1000 Australians, has found a significant proportion of people are unaware about specifically which expenses they can claim back as a deduction at tax time.

The survey found that investors who are female and in the millennial age bracket were least likely to be aware of what they can claim as a deduction, so if you fall into these categories then take note.

Here are the eight items few people knew they could claim - which can add up to a substantial sum when included as a deduction:

  • Real estate management fees
  • Depreciation on appliances and fixtures you bought.
  • Interest payments on mortgages
  • Building and pest inspection reports
  • Depreciation on construction costs
  • Expenses to rectify damage caused by tenants (if you are not insured)
  • Advertising fees for new tenants
  • Gardening expenses

The most concerning finding from the research was that 61 per cent of respondents did not know they could claim the interest payments on their mortgage for an investment property as a tax deduction. This is one of the single most significant expenses you should be claiming.

So how much are you losing?

About half a million investors do not claim mortgage interest deductions for their property. While many own their rental properties outright, others who are simply unaware of what they can claim. Given recent data from the Australian Taxation Office (ATO) shows the average claim from a property investor for deductions is $12,800 for interest and $11,000 for ‘other’ deductions, this should be enough to have any investor taking a close look at exactly what they should be calculating when doing their tax.

A common myth is that people with little or no mortgage on their investment property think that there is no point claiming depreciation as the property is massively cash flow positive and therefore they are “no benefit from negative gearing”. This is not so. Although it is true that the investor will pay taxes, depreciation claims will help lower the amount of tax paid, and this can be substantial.

Of course, you can’t claim personal expenses, or fees reimbursed by the tenant or paid directly by them, such as utility bills. However, most of the time, funds you have paid for the property as part of owning an investment portfolio are tax deductible. This can also be the case for relevant real estate education, such as seminar fees.

Be sure you don’t miss out

Every time you make an expense relating to your investment property, you should be holding onto the receipts and filing away any details so that you can be sure to check whether it is claimable at tax time. Detailed records can save you a substantial sum of money down the track, so we recommend taking photographs of your receipts (or scanning) and saving digital back-ups to avoid any future headaches around lost records.

The ATO has a comprehensive list of what deductions you can claim on a rental property, including body corporate fees and charges, council rates, land tax, insurance and even stationery. There have been recent changes to the rules about what can be claimed, including winding back deductions available for travel to a property and some depreciation items.

It is worthwhile speaking to an experienced accountant when filing your return, and when you buy an investment property, to ensure you are correctly maximising your expenses.