When you invest in property, whether single-family housing or commercial, it’s always beneficial to consider the tax aspect. Although you’ll have to pay property taxes, many of the fees and transactions you go through during the purchase will be tax deductible in the end.
In regards to conveyancing, it’s important to understand how it will affect your taxes. Use this guide to take a closer look.
Understanding the conveyancing process
Conveyancing is a term that many people are unfamiliar with, especially if you don’t have a lot of experience with property purchases. Even those who have bought a house before don’t know the term conveyance, even if they heard their realtor or attorney talk about it.
If you’re investing in real estate, you’ll hear the word conveyance often, so you should understand what it means. At its basic level, conveyancing is the process of legally transferring property from one owner to another. You’ll likely use fixed-price conveyancing in Brisbane to accomplish this task.
You are almost always charged a fee for these services, whether you’re buying residential, commercial, rental, vacation, or business-use properties. Fees are determined based on a certain percentage per $1,000 of the purchase price. You may also be charged additional fees by your broker, realtor, lender, and closing agent, depending on the situation.
Are conveyancing costs tax deductible?
Although there are many expenses that can be deducted from your expenses of purchasing an income property, conveyancing fees are typically not one of them. This goes for both state and municipality conveyancing fees.
These fees are excluded from your deductions primarily because they’re considered the seller’s responsibility. They are also created by the purchase and sale of your property instead of being created from an income-producing asset. As “capital costs,” they are not deductible.
“There is no separate or itemized deduction for conveyance fees or any other closing costs before the property is sold,” explains Namoi Smith of Zacks. “If you add the fee to the adjusted basis, you cannot also subtract the same fee as a settlement charge.”
However, you can exclude the conveyance fee from the gain when the property is sold, which can help your taxes in the long run. Additionally, although you can’t claim an immediate deduction, you can deduct costs from your capital gains tax because the fees paid for conveyancing are considered a part of the cost base of your property. It doesn’t make a huge difference in your tax burden, but it’s better than nothing!
It’s also important to understand the difference between the legal expenses you pay and conveyancing costs. Other legal costs incurred while managing or consulting with your property may be considered tax deductible. You can always discuss your options for tax deductions with the ATO for more information.
Cutting costs for your property
Even though you can’t deduct conveyancing services from your taxes, there are still plenty of ways that you can save in your investment. Here are a few ways to do so.
Use Free Software: There are many free software applications available to make your life easier, including free online rental application tools, landlord software, tenant screening tools, and more.
Do Your Own Repairs: Although some maintenance like electrical work and major plumbing issues should be handled by the professionals, you can do much of the maintenance yourself. With the help of a handy YouTube video, you can repair a leaky faucet, paint walls beautifully, clean out gutters, and perform other maintenance to save money.
Be Your Own Landlord: Don’t pay someone else to do what you can handle on your own. Being your own landlord is a great way to guarantee higher profits and greater tenant satisfaction.
