Four rental property deductions property investors are not allowed to claim to reduce their tax bill

Property Observer recently reported that the Australian Tax Office will write to 110,000 property investors over concerns they may have claimed rental property deductions they were not entitled to claim.

The ATO now has sophisticated data-mining tools that pick up inconsistencies in tax returns compared with previous years.

With around two-thirds of property investors negatively gearing their rental properties, knowing what you can and cannot claim is vital.

These are four rental property deductions that are not allowed:

1. Acquisition and disposal costs of the property
2. Expenses not actually incurred by you, such as water or electricity charges borne by your tenants
3. Expenses that are not related to the rental of a property, such as expenses connected to your own use of a holiday home that you rent out for part of the year
4. Borrowing expenses or interest on the portion of the loan you use for private purposes like buying a new car.

For tips on what you can claim as rental property deductions against your taxable income click here.

This advice is sourced from the ATO. It is of a general nature only and does not constitute financial advice. Investors should seek qualified professional financial and tax advice when completing their tax returns.