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Rental Property Construction: What Costs Are Tax Deductible?
Are you planning to invest in property to generate a bit of extra income? Have you decided to build instead of buying an existing property? Building from scratch can be a daunting experience, but if that is your preference, there are tax implications for which method of construction you choose. We at Baxton Property Management in Hobart thought it would be a good idea to give you an outline of what can, and what can’t, be added to your construction costs.
There are essentially three different ways to acquire a new building. You can subcontract people to build the structure, you can build it yourself, or you can buy a spec structure. Each of these different scenarios carries different rules regarding what you can and can’t claim as part of the cost of construction of capital works.
Hiring Sub-contractors: If you hire a builder to construct the rental property; there would obviously be other tradespeople and professionals involved, like plumbers and architects. You can claim the total expense of that contractor. This means that the profit that the contractor normally adds to his bill is allowable as part of your construction costs.
Owner/Builder: If, however, you are an owner/builder, the scenario is slightly different. Any labour or expertise that you bring to the construction of the building, and any “profit” that you might have expected to make; are not allowed to be included as part of the construction cost.
Speculative Property: When you buy a building from a spec builder you are also not allowed to claim the proportion of his invoice which represents his profit, as part of your construction costs.
Expenses you can claim as part of your construction costs
Preliminary expenses such as hiring an architect or an engineer can be claimed as part of your construction costs. The same applies to the costs of foundations. All payments you make to bricklayers and carpenters and so on for the construction of the building, can also be included in your construction costs. If you add a retaining wall or a swimming pool, for example, you are allowed to include that as well.
Expenses you can’t claim
The money that you used to buy the land, on which you are now erecting your rental property, cannot be added as part of your construction costs. Neither can you add costs of clearing the land before construction commenced.
If you put in earthworks that are permanent, but are not essential for the construction of the building, you are not allowed to add that expense, nor can you include any money you spend on landscaping.
Once your new building is up and ready for occupation, you will need the help of experts in property management, to maintain, manage, and supervise your rental property. We at Baxton Property Management Services in Hobart, have all the experience necessary for the efficient management of your new building. Visit us at the Baxton website for more info.
Written and syndicated by
– Baxton Media.
- 7 places you can buy an investment for under $400k
- Rental property tax: Interest, land tax and other deductibles
- 6 things you can claim to maximise tax savings
We hope you enjoyed this article
The information contained in this article is based on the authors opinion only and is of a general nature which is not indicative of future results or events and does not consider your personal situation or particular needs. Professional advice should always be sought relevant to your circumstances.
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