Rental property sale expenses – deduct or capitalise?

by | Mar 8, 2021

Are you a taxpayer buying or selling a rental property?

When a taxpayer buys or sells a rental property the question that often arises is which expenses must be capitalised and which can be claimed immediately.

Its important for an property investor to understand how various purchasing and selling costs are treated for a rental property.

1. Generally, costs incurred that are directly associated with the purchase or disposal of a rental property must be capitalised. Such costs include:

  • Purchase price of the property;
  • Conveyancing costs;
  • Advertising costs; and
  • Stamp duty.

2. However, not all costs associated with the purchasing or selling of a rental property have to be capitalised but may be expensed immediately.

3. Some of these expenses, of which some may be included on the settlement statement, include:

  • Council rates;
  • Water rates;
  • Body corporate fees; and
  • Adjustments to any of the above.

4. As a result, when working out the capital gain or loss on the sale of a rental property, these costs need to be excluded from the cost base but can be claimed as an immediate deduction against rental income.

5. Further day-to-day operating expenses incurred in running and maintaining the rental property are generally deductible in the year that they are incurred, and include costs such as insurance, cleaning, repairs and gardening expenses.

Remember: not all purchase and selling costs will have to be capitalised upon the purchase of a rental property.

Contact us if you require any clarification or advice.