Correctly claiming expenses is something every responsible business owner should be doing, and investment properties are no exception. So, what exactly can you claim for? Below are three commonly overlooked expenses that property investors can claim for on their rental income.
Travels to the property
Even if you are using an agent, many property investors like to visit periodically. It may be to see the scale of maintenance work required or simply tagging along to the agent’s routine inspection to get a better sense of certain wear and tear items. All these travels, back and forth, are claimable expenses.
Gifts for tenants
Many savvy properties investors know that a happy tenant is an asset. Making sure you manage a positive relationship with your tenants goes a long way. That’s why some landlords take the time and effort to prepare a small gift for new tenants when they move in to their home for the first time. Or, for existing tenants, many landlords prepare a small gift when the holiday seasons draw near. These gifts can be (and should be) claimed as expenses by property investors.
More often than not, being a property investor is a busy job all on its own. You can be forgiven for trying to avoid the hassle of keeping every single receipt and invoice for expense claiming. Using a property manager, several minor expenses such as advertising, background checks, credit checks, fees for drawing up tenancy agreements, and court costs can all be wrapped up into one easily trackable agent fee. This agent fee is tax deductible, so essentially you’re wrapping all these small tasks into one simple one.
There are many more expenses that you can claim for:
- accountant fees
- repair and maintenance
- fees for arranging a mortgage to finance the rental property
- fees for drawing up a tenancy agreement
- mortgage valuation
- court and other legal fees
- eviction fees
- mortgage repayment insurance
- legal fees involved in buying a rental property
You can also deduct interest on money you have borrowed to buy your rental property. You cannot deduct this if you have used some of the money:
- for something else; or
- to top up the mortgage for another purpose.
Expenses you cannot deduct from your rental income are:
- capital expenses
- purchase price of a rental property
- mortgage repayment principle
- additions or improvements to the property
- repairing or replacing damaged property, if the work increases property value
- real estate agent fees charged as part of buying or selling the property
- depreciation on the rental’s land or buildings
- your time cost when you do repairs and maintenance work
- legal fees involved with selling the rental property (unless you’re in the business of providing residential rental accommodation)
The difference between repairs and improvements can be complex. If you are unsure about whether work done on your property is repairs or improvements, talk to a tax agent.
There is another question that is commonly asked by property investors, recently. That is: “can I claim the expenses incurred while trying to meet the Healthy Homes Standards?
The Inland Revenue Department (IRD) answers that question as follows: “costs of a revenue nature are generally deductible in the income year they are incurred and these may include the costs of repairing items that would otherwise meet the standards if operational or in a reasonable condition… (or) minor additions or alterations that do not change the character of the building.” This is good news for property investors and they should definitely claim any such expenses. If you’re looking to find out more details about this matter specifically, you can always refer to this document supplied by the IRD.
For further information on claimable expenses in general, check out the resources at IRD’s official website.