How to reduce taxes from an investment property

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TreyS
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Joined: Tue Feb 26, 2019 11:32 am

How to reduce taxes from an investment property

Postby TreyS » Tue Feb 26, 2019 11:35 am

I’m quite frugal and my family loves reminding me of that every chance they get. My liquid savings will go up to six figures after my fixed deposit term expires next month. I earn about 90k a year as an environmental consultant. I’m just starting to dip my toes in property investing and heard that I could reduce my taxes from an investment property. How is this possible?

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Otto Dargan
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Re: How to reduce taxes from an investment property

Postby Otto Dargan » Tue Feb 26, 2019 2:38 pm

Hello Trey. Welcome to the forums.

Congratulations on saving up.

Just to be clear, you're not actually reducing your taxes when buying an investment property. You're reducing your taxable income based on any losses you make in holding the property.

If the interest you pay on theinvestment loan and the costs you incur in the upkeep and repair of the property cost more than your return (typically rental income), you are normally permitted to claim the net loss as a tax deduction against your other income.
This is a common investing strategy known as “negative gearing”.

For example, let’s say that your income was $100,000 and your property made a loss of $10,000 per annum.
By speaking with your accountant, you may be able to reduce your taxable income to $90,000 and if the tax rate at the time was 30%, you’d receive $3,000 as an additional tax refund.

Please use our property investment calculator to work out the depreciation and loss on your investment property.

Let one of our experienced mortgage brokers help you qualify for your first investment loan by calling us on 1300 889 743 or fill in our free assessment form.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

TreyS
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Joined: Tue Feb 26, 2019 11:32 am

Re: How to reduce taxes from an investment property

Postby TreyS » Tue Feb 26, 2019 3:20 pm

Hey, what about Capital Gains Tax. How is it calculated?

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Otto Dargan
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Re: How to reduce taxes from an investment property

Postby Otto Dargan » Tue Feb 26, 2019 6:36 pm

Hi Trey,

The Capital Gains Tax (CGT) is tax calculated by taking the base proceeds of the sale of the property less the cost base of your property.

The proceeds are the funds from the sale of the property and the cost base generally includes the amount you paid for the property plus any incidental costs and less building depreciation claims.

For example, if you sold a property for $800,000, that would be the base proceeds.
If you had bought the property for $600,000, and paid $2,000 in legal fees, $20,000 in stamp duty, $10,000 agents commission and claimed $50,000 depreciation, your cost base would be $682,000.

Your gross capital gain is the base proceeds minus the cost base which is $118,000.

This amount is added to your regular income and tax is paid accordingly just like regular taxable income.

Hope this helped.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

TreyS
Posts: 3
Joined: Tue Feb 26, 2019 11:32 am

Re: How to reduce taxes from an investment property

Postby TreyS » Tue Feb 26, 2019 7:24 pm

It absolutely did. Before I let you go, you mentioned depreciation as well. Can you tell me how I can claim depreciation for an investment property?

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Otto Dargan
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Re: How to reduce taxes from an investment property

Postby Otto Dargan » Tue Feb 26, 2019 7:57 pm

Hi Trey,

It is easy to overlook the hidden and sometimes significant deductions available in depreciation of an investment property.

Tax law states that a property owner can claim depreciation on the decline of the value of furniture, plant, equipment, and buildings used in or as part of a rental property.

We recommend speaking to an accountant who specialises in tax benefits for property owners regarding this.

We have experienced mortgage brokers who deal with investment loans all the time.

Give us a call on 1300 889 743 or fill in our free assessment form to find out the best investment loan options for your needs.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts


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