Interest Deductions for Rental Properties
The ATO data shows 1.8 million individuals own an investment property with 67% of those investors recording a loss on their rental income. The average loss for property investors with negatively geared properties is $10,947 per annum. Interest expense is by far the biggest deduction for rental property owners and totals $23 billion per year and accounts for 58% of the total rental property expenses.
Interest will be deductable for a rental property under the following circumstances:
- The rental property is either actually rented or genuinely available to rent, i.e. listed with a real estate agent for rent.
- The rental property is being built.
- Work is done to a rental property after purchase to make it more attractive to tenants.
- A rental property is taken off the market for repairs or improvements.
- Borrowed monies are used for repairs or renovations, to buy depreciating assets for the rental property, or to pay deductible rental property expenses.
- To the extent that a loan was used to acquire a rental property. Where any part of the loan was used for private purposes that portion of the interest will not be deductible.
- Interest incurred prior to the settlement date.
- Where a rental property is sold for a loss and a loan shortfall amount continues after the sale.
Taxpayers can maximize their total rental property interest deduction claims by keeping good records.