When preparing a return for rental property owners, there are various records you need to keep. Some records need to be maintained for at least five years or more. Many rental property owners often skip a few details when preparing a tax return and end up paying more than required. To help you avoid paying a large amount as a tax, a list of important detail has been mentioned in this blog.
Steps to Prepare a Return for Rental Property Owners
Have a closer look at the following steps to know the important details you need to keep as a rental property owner:
Maintain all the income you receive
- short-term rental arrangements that include a holiday home
- sharing a portion of your home
- other income related to the rental, such as rental bond money you have and insurance payouts
Get your expenses right
- Eligibility criteria: You are allowed to claim expenses that were incurred during the time period your property was rented or when you were trying to rent the property on commercial terms
- Timing: There are some expenses that can be claimed over several years
- Apportionment: Apportion your claims where your property was rented for a part of the year or only a portion of your property was rented out, where you used the property or rented it at less than market rates. You have to apportion your ownership interest.
Maintain records to prove it all
It is vital for every rental owner to maintain records regarding income and expenses related to their rental property along with sale and purchase records.
Rental Income and Complete Your Tax Return
You need to declare payments and rent-related to your rental property in your tax return:
- If your tenant pays your agent or property manager directly, you must report rental income in the year that your tenant does so rather than when it is sent to you.
- Depending on your legal property ownership (for insurance, if you own 50% of a property, you need to declare 50% of the rental income when preparing a tax return.
If you are eligible, then you are allowed to claim a foreign income tax offset for the tax amount you pay on your rental income in another country.
Types of Rental Income
Rental income can be considered payments that you receive in the form of goods and services or the form of cash. You need to consider checking the monetary value of income you receive in the form of goods and services. Rental income is paid by your tenant either to you, your property manager, or an agent. Payments related to your rental income may include:
- bond money you carry in place of rent or carry because of property damage
- booking fees you carry when tenants or holidaymakers cancel the booking
- for a disaster, insurance payouts, such as
- damage caused due to a natural disaster
- damage caused due to an unexpected event
- the income you receive from a relief fund in a disaster
- money for deductible expenses
- payments from renters to cover the expense of repairing property damage
- government rebates for purchasing a depreciating asset (for instance, a solar hot water system)
- rental income’s lump sum payments
- any assessable amounts related to recourse debt arrangements including your rental property
Rental Expenses to Claim
You can claim expenses that are related to your income-producing activities if any of the following conditions apply:
- your property is really available for rent for a part of the year
- you use your property for private use for part of the year
- you use a portion of the property to earn rent
- you rent your property for less than market rates
- you use your investment loan partially for personal uses.
The blog shares steps to prepare returns for rental property owners, types of rental income along with rental expenses that a rental property owner can claim. For further details, you can get in touch with Reliable Melbourne Accountants.
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