Claiming Real Estate Expenses on your Tax Return

Posted on January 26th, 2009

For individuals that work from home, in the real estate business, or for an employer, you are able to make a claim for a portion of your expenses when you file your tax return. If you are looking to claim home office expenses, it’s important to start by knowing that you need to have atleast one dedicated room in your home as a working office space.

When you file your taxes, the office has a very fine line between something called running expenses, vs. occupancy expenses. It is usually easier to claim the running costs on a tax return. There are very few circumstances that allow a deduction to occupancy expenses like rent, or mortgage interest. For example, running expenses relate to the amount of use of facilities within your home. Your electric charges, lighting, cleaning and cost of repairs on items or furniture that are in your office. Occupancy expenses on the other hand relate more to the ownership, or the use of a home that aren’t affect by the taxpayer’s income earning activities. These include rent, mortgage interest, water, or home insurance premiums.

How to Claim Home Office Expense and Running Expenses

In order to know how much you will receive from your running costs, you’ll have to calculate the figures. For gas and electricity, the tax office will allow the option to claim a calculated deduction (.26 cents per hour). Other home expenses like phone, mobile, or internet bills or the decline of value in a computer or other items can be calculated seperatley.

Example of a Home Office claim

Gas and Electric bills = $2000.00/yr * 15% = $300.00 (The 15% is calculated as the ratio that was worked on the businesses time)
Depreciation of your computer or other items 50% = 300.00 (50% of the computer or other items used for business, all depends on individual costs).

Example of home office claim (% of total hours)

.26 cents * 10 hours/week * 52 = $132.50
50% Depreciation on computer = $300.00 (50% of computer used for private use)

There are also regulations on these claims. A deduction is allowable only where additional running costs are incurred by a taxpayer because of their job at home. This income producing use of the home needs to be a substantial amount. Also when taking into account the items that will decline in value, the percentage needs to be taken depending on how much these items are specifically used for the business. When looking to claim these items, make sure that you can produce proof that you have incurred these expenses.

Claiming home office expenses – Occupancy expenses

Limited circumstances occur in which a deduction will be allowable for occupancy expenses like rent and mortgage interest. They can only be made if you refer to your home as your “Place of business”.

How do you define a Place of Business?
- The area is clearly identifiable as a place of business.
- The are is not readily suitable or adaptable for any private use or domestic purposes that would generally be associated with the home
- The area is used exclusively or almost exclusively for carrying out your business.
- The area is regulary the place of visits for clients or customers

What occupancy expenses can be claimed?
In addition to running costs, you are able to claim
-Rent (apartment, house, condo, etc,)
- Interest on the mortgage
- Council and water rates
-Home insurance premiums

Example of the home office claim for Occupancy Expenses:

Rent = 10,000.00/year * 30% = $3000.00 (30% is the floor area used for business)

In most cases, the proportion of the total expense incurred on a floor area basis is the right method that is used for claiming calculations. You have to be able to determine which percentage of the floor area is actually used for business. Where an area of the home is a place of business for only a part of the year, it could be necessary for expenses to be appointed not only on a floor area, but also on a time basis. The ATO allows deductions for non-capital expenditures on repairs to the premises, for the purpose of producing assessable income. Such as repairs to things that the customer will be able to be effected by.

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