Rent expenses are deductible from the price that they are incurred for the purpose of producing rental income.

Sometimes, rental expenses can be deductible for periods even when the property is not being rented out.

However, this is only the case provided the property is genuinely available for rent. This means, the property is being advertised and tenants are likely to rent the property. In no way can the owner live in the rental property and claim these deductions.

Possible factors that indicate a property is not genuinely available for rent include:

The absence of these factors from the owner, generally displays that the owner is not serious about renting the property and generating income from the property, and in turn, may have other purposes for the property.

 

Smiling Family Carrying Boxes Into New Home On Moving Day

Can I do part-year rentals on my investment property?

Yes, many people choose to use their investment property for both private and commercial purposes. While this is legally allowed, you cannot claim any deductions during the period when you are living in the property. Deductions are only available for the periods in which you rented out the investment property.

Take Tom and Cindy for example, who own an investment property, which they rent out at market rates and use as a holiday home. They advertise the property for rent during the year through a real estate agent. Tom and Cindy only occupy the property themselves for four weeks of the year.

During that year, Tom and Cindy’s expenses for the property are $34,801. Yet, they only received $25,650 from renting out the property all year. Tom and Cindy are able to claim deductions for their expenses based only on the proportion of the income year the property was rented out. Thus, no deductions were able to be claimed for the four weeks Tom and Cindy used the property.

Can I claim deductions if only part of my property is being rented out?

Yes, however, if only part of the property is being used to earn rent, you can only claim the part of the expenses that relate to the rental income.
As a general rule, apportionment is made on a floor-area basis.

For example:

A good example of this would be Jeff’s private residence, which also has a self-contained apartment. The apartment’s floor area is one-third of the residence’s. Jeff rented the flat for six months of the year at $100 per week. During the rest of the year, his niece lived in the flat rent-free.

All of Jeff’s expenses amounted to $9,000. Using the floor-area basis for apportioning his expenses, one-third ($3,000) applies to the flat. However, as Michael used the flat to produce rental income for only half of the year, he can only claim a deduction of $1,500.