Finder.com.au Home Loans Editor, Adam Smith
Tax time: How to know what deductions you can claim
Investors definitely get the lion’s share of benefits at tax time. But just because you’re an owner-occupier doesn’t mean you’re left out in the cold. There are still deductions available if you know where to look.
When it comes to tax deductions for your family home, it all comes down to whether or not you use any part of it to generate income. If you do, you could score some big deductions at tax time.
Telecommuting is becoming increasingly common, and many of us work from home at least some of the time. If you do, your tax deductions will depend on how much time you spend working from home, and whether or not you’ve dedicated an area of your house as an office.
If you work solely from home and have set up a dedicated office, you’ll get the biggest benefit at tax time. You might be able to deduct your rent and mortgage payments, your home insurance, your utility costs, work-related phone and internet costs and even maintenance and depreciation of office equipment.
If you work part of the time from home and keep a dedicated home office, you can claim depreciation of your office equipment, utility costs related to your home office, maintenance costs for your home office and work-related phone and internet costs.
If you work from home but don’t have a dedicated home office, you’re much more limited in what you can claim. You can claim depreciation of your office equipment and work-related phone and internet costs. With that in mind, it might be worth setting up a dedicated home office area so you can make the most of your tax deductions.
For running costs such as maintenance and utilities, you can keep detailed records, or you can use a fixed rate of 45 cents per hour for heating, cooling, lighting and depreciation of office furniture.
The Australian Tax Office has made it clear that they’ll be paying close attention to workers who take deductions for their phone, internet and utility bills, so if you work solely from home you’ll want to keep detailed records.
If you want to accurately figure out your home office deduction, the ATO has a handy calculator you can use. You’ll need to have receipts on hand for home office equipment and furniture, as well as for any running costs.
Renting out a room
If you have a spare room in your house, renting it out can net you some tax benefits. While you’ll have to report the income produced by renting out the room, you can also get some helpful deductions.
You’re entitled to claim deductions on an income-producing room on the basis of your home’s floor area. The ATO says you should apportion expenses based in the room solely occupied by your tenant, as well as a “reasonable figure” for the tenant’s access to shared living areas. This is generally up to 50% of the total common floor area.
This means you’re able to deduct for any repairs and maintenance for the tenant’s area, as well as a portion of repairs and maintenance for the common areas. You can also deduct a portion of the estimated depreciation for the property, and up to 50% of the interest paid on your mortgage.
All this can add up to a serious deduction, even after reporting the income the room generates. On top of this, devoting the income generated by renting out a spare room to paying off your home loan can save you thousands and shave years off your mortgage.
While investors might get the most preferential treatment at tax time, owner-occupiers can still win out if you know how to claim the deductions you’re owed. But be sure to seek out the advice of a good accountant to make sure you’re owed all the deductions you claim.