We know that property investment is a sound idea, right? And, it’s one of best strategies for long-term retirement planning? But, do you know how to:
• Leverage your properties for the best returns?
• Gain from the benefits of property tax deductions?
• Manage your responsibilities for capital gains?
If you’re unsure in any of these areas, then this post will point you in the right direction…
Rental property depreciation is one of the most important investment property tax deduction. What’s more, it is calculated on the cost of building the home + the cost of fixtures and fittings…not on the price you pay for the property, (or the price you pay the builder to build it)!
A depreciation schedule provided by an expert Quantity Surveyor will provide details of the depreciation you can claim over the life of the property. And by maximising depreciation in your investment property tax return, this one-off $600 investment could save you up to $4,500 in tax every year!
Do you associate an investment property with a tax refund?
It’s true this can be the case, but there’s more to it than this common assumption suggests. And it all depends on whether you are making a cash loss or a tax loss!
• Are you making a net “cash loss” on your rental property?
When you make a cash loss i.e. rent less your cash expenses to earn the rent like management, fee, rates and write this off against your PAYG income, you will still be out of pocket, even after the refund.Its like trying to lose a dollar to save cents.
• Are you merely making a “tax loss” due to non-cash deductions like depreciation?
On the other hand, when you make a tax loss due to a significant, non-cash deduction like depreciation while still being cash positive, you’ll be significantly better off in real terms while also enjoying a greater refund.
No doubt this can get confusing and that’s why it’s helps to consult an accountant before making the decision to buy an investment property. After all, understanding the difference between a cash loss and actual tax deductions can confuse even the savviest investor.
And it pays to remember…
No purchase can be considered a good ‘tax deduction’ – all purchases mean you have to spend to make the purchase in the first place! So, make sure this spend will really help you save in the long run.
If you’re saving on tax due to investment property deductions, rather than waiting until the end of the year to get a refund, you can vary your PAYG installments, which means you pay less each month.
Your improved cash-flow could help to pay your mortgage faster and save you interest. However, you need to be careful – your actual tax should remain within 15% of the varied amount.
A final word…
Did you know that getting a professional to help you work out your tax deductions is also tax deductable!
Book a free consult with Nitin Vashisht,CPA and our tax accountant specialising in property investment.
So, what are you waiting for…