The Advantages of Pre-paying Interest on Rental Property

Pre-paying interest rates on your rental property in advance can actually bring in more benefit for investment loans. It appeals to property investors because paying 12 months interest in advance the investors can claim the deduction for the financial year.

This approach is beneficial especially when you are pre-paying the interest when tax cuts are scheduled for the following year. Also, when you are foreseeing a low financial income the following year, it is best to pre-pay the interest while you are able.

However, it takes an individual with a huge cash flow to do this technique because one year’s worth of interest requires a significant amount of cash. An investor should asses himself if he is able to do this technique for the following years to come.

A property investor can claim a tax deduction for additional expenses other than the interest in the loan. It is advised by the Australian Taxation Office to claim expenses for a rental property that is currently being rented or available for rental.

Things that can be claimed as deduction do not include contributions to sinking funds and appliances. However, depreciation can be claimed for freestanding items that costs $300 or less in one year.

Investors can claim capital works deduction for construction expenses. Other expenses includes advertising, bank charges, body corporate fees, borrowing expenses, council rates, decline in value of depreciating assets, insurance, gardening and lawn mowing, pest control, telephone, water charges and others.

If only a certain part of the property is being rented, an investor can also claim expenses for the specific part alone.

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