LMI Deductions for Rental Properties

Is Lenders Mortgage Insurance (LMI) Deductible for Rental Properties?

Yes, Lender’s Mortgage Insurance (LMI) can be claimed as a tax deduction for rental properties in Australia, but it must be done over time as a borrowing expense. Understanding how to correctly claim this deduction is vital for property investors who want to maximise their tax deductions and get the maximum refund.

Index:

1. What is Lender’s Mortgage Insurance (LMI)?
2. How to Claim LMI as a Tax Deduction
3. Example of LMI Deduction
4. Reporting LMI on Your Income Tax Return
5. Tips for Maximising Tax Deductions
6. Gotax Deduction Grabber App
7. Conclusion

What is Lender’s Mortgage Insurance (LMI)?

Lender’s Mortgage Insurance (LMI) is insurance that protects the lender if the borrower defaults on the loan. This insurance is usually required when the borrower’s deposit is less than 20% of the property’s value.

How to Claim LMI as a Tax Deduction

LMI is classified as a borrowing expense and can be claimed over time on your income tax return. Follow these steps to ensure you are claiming it correctly:

1. Calculate Your Total Borrowing Expenses:
   Include LMI, loan establishment fees, title search fees, and any other relevant borrowing costs.

2. Spread the Deduction Over 5 Years:
   Borrowing expenses exceeding $100 must be spread over the lesser of the loan term or 5 years. If your loan is shorter than 5 years, the deduction will be spread over the loan period.

3. Calculate the Annual Deduction:
   Divide your total LMI by 5 (or the loan term) to find out how much you can deduct each year.

Example of LMI Deduction

If you paid $2,000 in LMI for your rental property, here's how you can claim it:

• Total Borrowing Expenses: $2,000 (LMI)
• Deduction Spread Over 5 Years: $2,000 ÷ 5 = $400 per year

In this example, you can claim $400 annually for 5 years on your income tax return.

Reporting LMI on Your Income Tax Return

When preparing your income tax return, you'll need to report the deductible LMI amount in the rental property expenses section. Here’s how:

1. Log into GoTax.
2. Navigate to the section for Rental Properties.
3. Find the section for Borrowing Expenses.
4. Enter the annual deduction (e.g., $400).  The Gotax System will calculate your yearly tax deduction claim.

Tips for Maximising Tax Deductions

• Keep Records: Ensure you maintain all records of your borrowing expenses, including LMI, in case the ATO requests evidence.
• Partial Year Adjustments: If you obtained the loan partway through the financial year, adjust your claim proportionally based on the number of months the loan was active.

Gotax Deduction Grabber App

Maximising your tax deductions has never been easier with the Gotax Deduction Grabber App. This app provides all the logbooks and tax expense recording systems you need to manage your records. Simply scan the QR code below to download the app and start managing your expenses more efficiently.

Conclusion

Lender’s Mortgage Insurance (LMI) for rental properties is a tax deductible borrowing expense, but it must be claimed over time. Make sure you calculate the deduction correctly to maximise your tax deductions and potentially increase your tax refund. If you're unsure, consulting a Gotax professional is always a good idea.

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