Accurate Records Are a Must
Rental property owners are responsible for maintaining complete and accurate records throughout the year to ensure that their taxes have been filed correctly. There are several mistakes that rental owners can make which can cause them to be audited and can result in penalty fees.
One of the most commonly made mistakes is keeping inaccurate records, or failing to add expenses to a rental property's files. Accurate records must be kept in order to claim expenses and be able to verify income. If a property has been sold it will be subjected to capital gains taxes, so it is wise to keep accurate records up to at least five years after selling.
A Rule Property Owners Must Adhere To
Another thing rental property owners must do is to ensure that the property is available for rent in order to qualify for a tax deduction. If the property is empty it must be advertised in a manner that makes it easy for people to see it. The cost of the rental unit must be within a reasonable cost range compared to similar properties. An owner can't make it difficult to rent or they can experience repercussions from claiming the property as a rental unit.
Tax Rules about Repair Deductions and Borrowed Money
As with other records, it is crucial to keep receipts for repairs made. Any initial repairs and improvements may not qualify for a deduction in the same year the expense was incurred. There are several rules related to repairs and tax deductions. For example, an owner can claim up to 2.5% of repair costs for up to 40 years after the repair completion.
Any repairs that must be made as a result of renters destroying property or normal rental wear and tear can be deducted the same year the cost was incurred. When claiming expenses that were borrowed and over the sum of $100, rental owners can spread the deduction over a five year period if under $100 the borrowed sum can be claimed the same tax year. These expenses are usually the result of loan establishment fees, costs of preparing and filing mortgage documents, and title search fees.
Seek Professional Guidance to Ensure Property Taxes are Filed Correctly
It is often in the best interest of rental property owners to seek professional tax guidance because property taxes can be confusing. For example, some things can't be claimed on taxes such as costs that pertain to the purchase of the property. An example of purchase costs would be the money spent on conveyance fees or stamp duty if the property is out of the ACT.
If the property sells the costs of these items can be used when figuring the capital gains taxes. Other tax-related subjects such as loan interest, construction costs, co-ownership, along with other tax rules are important to know. Any mistakes made while filing taxes can result in serious issues that could have been prevented. Feel free to contact us today to learn more about rental property tax rules and how to adhere to them.
Written by Tax Professionals