Rental deductions: Are yours covered?

jokerjoe

jokerjoe

Hi,

Just a quick heads up. Some will know this but many probably won't (I didn't)

When reading somewhere about LMI, it was mentioned that it was tax deductible on an investment property. My ears immediately pricked up as I know my tax agent never mentioned this in past years.

I googled this and found a bit more anecdotal information but nothing concrete. As I was going to do my tax I thought i'd check with them. Was told that it wasn't claimable til the property was sold. Not convinced but not having the evidence to correct I let it slide.

In the end I found this on the ATO website....

You can claim all of the following:

stamp duty charged on the mortgage
loan establishment fees
title search fees charged by your lender
costs for preparing and filing mortgage documents
mortgage broker fees
fees for a valuation required for loan approval
lender's mortgage insurance, which is insurance taken out by the lender and billed to you.

LMI is claimable over 5 years or less if loan term is shorter.

LINK AS FOLLOWS:
http://www.ato.gov.au/individuals/content.asp?doc=/content/00113245.htm

End result.

- Will be having an interesting conversation with my Tax Agent (major chain).
- Will not be using them again after they backdate my returns.

Might have to investigate using a proper accountant. My return is just simple Resi IP stuff (at least I thought) No trusts, SMSF or company.

I thought I would post my experience as it wasn't a one off with a particular person... it was over multiple years/tax agents/properties and no one picked this up.

Comments/Opinions/Similar Stories?

Joe
 
Joe
Mate this is common knowledge.
Give your tax agent the boot immediately.
Do they have a junior doing your tax return? :eek:
 
I did my tax the other day and this stuff was all in the e-tax app, quite easy to follow too. I didn't bother with most of it, the house has some depreciable items but I CBF. Didn't know you could claim travel allowance - even at a couple cents a km that was a paper deduction that took a big chunk out of my bottom line. We self-manage and have been to the house 3 times for inspections/maintainence. But then I pay $1.98 a fortnight in managing fees so it all evens out :)
 
Usually tax agents at 'major chains' arnt the best going around. I remember while at uni, one of my mates (not the brightest around) got a job as a tax agent in a major chain, and didn't even finish his degree (was struggling to do so).
 
jokerjoe said:
I thought I would post my experience as it wasn't a one off with a particular person... it was over multiple years/tax agents/properties and no one picked this up.

Comments/Opinions/Similar Stories?

Joe
Click to expand...

Hi Joe,

I had more than 1 accountant miss this completely over about 5 years!
 
Another thing that lots of people don't know about LMI - if you refinance your mortgage within 2 years, you can get a partial refund of your LMI. I think it's 40% refund if refinanced within 1 yr and 30% refund if within 2 yrs.

Note, that's only if you had to pay LMI again on your refinanced loan (ie wasn't transferred across) or if you refinanced less than 80% of the property value (by either paying extra money off, the property value increasing or by borrowing the amount over 80% against something else).
 
Sounds like your accountant was treating LMI as a capital cost, rather than a cost of borrowing. It is clearly a cost of borrowing,and deductible over 5 years, as you have mentioned.
 
I used to do my own tax when it was just a wage return and read the relevant legislation on deductions etc (ignored the IP stuff as I didn't have one at the time).

Once I started investing I decided to get a professional to do it as I didn't have the time and thought they would do a better job. I guess at the end of the day no one watches over your money better than yourself.
 
If you were going to a major chain to have your tax done, chances are, it was not an accountant doing your work.
Spend a few afternoons doing a H&R Block course and they'll give you a job attempting tax returns. ITP is the same.
There is a reason they are so cheap.
You can't expect much from someone that charges $150 to do a tax return
 
Oh this is handy information. I've been to several accountants over the years and I don't think LMI or stamp duty was deducted. I was also under the impression it was capital. That's slightly annoying......
Out of interest, if LMI is capitilised in the loan, is it still deductible? I'm guessing it wouldn't make any difference??
 
Speed_D3mon said:
Out of interest, if LMI is capitilised in the loan, is it still deductible? I'm guessing it wouldn't make any difference??
Click to expand...

Makes no difference to the deductability of the LMI - still deductable. When it's capitalised, you can also deduct the interest you pay on it as well :)
 
Hi Speed_D3mon,

you might be thinking of the stamp duty on the actual property and not the mortgage duty.

something of interest from the OSR website:

http://www.osr.nsw.gov.au/taxes/mortgage/

they are abolishing NSW mortgage duty by 2012

Regards,
ASH

Stamp duty on the
Speed_D3mon said:
Oh this is handy information. I've been to several accountants over the years and I don't think LMI or stamp duty was deducted. I was also under the impression it was capital. That's slightly annoying......
Out of interest, if LMI is capitilised in the loan, is it still deductible? I'm guessing it wouldn't make any difference??
Click to expand...
 
PHF said:
If you were going to a major chain to have your tax done, chances are, it was not an accountant doing your work.
Spend a few afternoons doing a H&R Block course and they'll give you a job attempting tax returns. ITP is the same.
There is a reason they are so cheap.
You can't expect much from someone that charges $150 to do a tax return
Click to expand...

I know there are good and bad in every company.
We have returned to H & R Block after a disasterous couple of years at an accountant.
We pay H & R Block about $1800 year to do our returns...compared to the $400 the accountant charged.

They do an amazing job for us.Also will stand behind you if audited, which is something our accountant wouldn't. We were audited using the accountant.
 
Re Stamp Duty

Yes be careful speed demon - the stamp duty on the loan is a borrowing cost and therefore deductible over 5 years. The LMI is deductible. Stamp Duty on the house purchase is most definately a capital purchase for an investor. If you have a business of buying and selling property this changes slightly. See a good accountant!
 
How insurance policy is worded becomes important

From the ATO...

Borrowing expenses

These are expenses directly incurred in taking out a loan for the property. They include loan establishment fees, title search fees and costs for preparing and filing mortgage documents, including mortgage broker fees and stamp duty charged on the mortgage.

Borrowing expenses also include other costs that the lender requires you to incur as a condition of them lending you the money for the property – such as the costs of obtaining a valuation or lender’s mortgage insurance if you borrow more than a certain percentage of the purchase price of the property.

The following are not borrowing expenses:

insurance policy premiums on a policy that provides for your loan on the property to be paid out in the event that you die or become disabled or unemployed
interest expenses.
 
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