Potential Home Tax Deductions that you may be missing out on!
People may traditionally consider their home to be their castle – but not necessarily a source of tax deductions. Or is it ?
Is your house also your place of business?
What if your home is also your place of business – like a hairdresser who runs a salon in a separate room under the house? In this case running costs like phone and electricity and potentially a portion of your occupancy costs such as rates, insurance and mortgage interest may be tax deductible.
As a general guide, your should apportion expenses on a floor area basis, based on the area occupied solely by the business plus any reasonable figure for access to other general living areas – such as lounge rooms, bathrooms and toilets.
Similarly, you may work in an office, but you choose to do extra work from home after hours. In this situation, you may be able to claim running costs in relation to the time you spend at home doing income producing work. In most cases there are formulas you can use to calculate these expenses based on the number of hours that you work.
Is your home used for commercial rent?
If you rent out part of your home for a commercial rate of rent, then you must declare that rent as income, but this also allows you to claim deductions for the associated costs. In a similar manner to home based businesses, the expenses should be apportioned on a floor area basis.
People who list their rooms for rent through sites like AirBnB should be aware that this almost certainly applies to their arrangements.
Some people have holiday homes which they use privately for part of the year and offer for rent for the remainder of the year. In this case, expenses often need to be apportioned between private use and rental tenants.
It is worth noting that payments from a family member for board and lodging are considered to be private and domestic arrangements and not rental income. Therefore, expenses cannot be claimed.
Making Your Home a Source of Potential Income
Sometimes for work reasons people need to move away from their family home to another city or State. In this case, then your private home can be turned into a rental property.
Full market rent can be charged and all associated expenses such as loan interest, rates, insurance, repairs and depreciation can be claimed as expenses.
If you do not buy another family home, you can rent your existing family home out for up to six years without incurring any capital gains tax liability. Provided you move back into the home within 6 years and re-establish it as your principle place of residence, you can move back out and have another 6 years of CGT free renting.
Other situations like running a business from home and claiming occupation expenses could incur a capital gains tax liability upon sale of the property.
People who own larger blocks of land may see the potential of subdividing, building and renovating or other property development opportunities. There are many local government, state and tax related rules that need to be considered prior to undertaking these types of projects and often legal, tax and other specialist forms of advice is necessary.