Real estate investment proves to be a beneficial business since it can become a very profitable venture by realising high cash profits. In addition, when you own an investment property, the current tax laws allow property investors access to several tax incentives. This information can give you a clearer perspective of the taxes concerning investment and help you get the best out of it. This blog aims to help you navigate the most important and relevant tax benefits linked to real investment properties and how to maximise them.
Depreciation Deductions
As mentioned earlier, depreciation is another important tax refund for property investors. It is possible to take depreciation on not only the structural part of the building but also the items installed on it. According to the ATO, property owners are entitled to depreciation of the building over 40 years of its initial cost. It is also possible to depreciate any asset that is acquired for use in the business such as carpets, appliances and furniture over their effective life. It is recommended to consult with the property consultant or a real estate financial advisor to fully appreciate the provision and arrive at the rightful depreciation claims.
Engage a Quantity Surveyor
It should be noted that to rightly calculate depreciation allowances one should consult a quantity surveyor. Such experts can produce a depreciation schedule that lists all the items that are considered depreciable in the property. It is crucial to employ this schedule to ensure that taxpayers can maximise on the allowable deductions on their return as well as conform to the existing tax laws.
Interest Deductions
Another tax advantage of investment properties is probably the most appealing to many people today: you can fully deduct the interest on your investment property mortgage. If you have used your money to borrow to finance the purchase of the investment property, then the interest of the loan you used is also allowed as a tax relief. It can go a long way in saving your tax liability. Speaking with a financial planner on how to invest in a property, means that your loan arrangement will be set in a manner that will allow for this benefit to accrue.
Other Loan-Related Deductions:
Besides mortgage interest, more costs which can be depreciated include loan establishment fees, mortgage insurance, and other related loan maintenance costs. A real estate financial advisor can recommend a list of expenses that you can deduct to avoid missing out on any possible tax deductions.
Operating Expenses
If you hire property management specialists to take care of the practical management of the investment property then the fees they charge are tax-deductible. This is in the form of charges for services like credit checks on tenants, rent collection and repair services. Fees for property management may be relatively high therefore any cost incurred in this field can attract deductions.
Capital Gains Tax (CGT) Concessions
You may be required to pay capital gains tax on the amount that you receive as profit when you dispose of your investment property. However, if you own the property for over 12 months then you can enjoy a CGT discount of 50%. This means that only 50% or half of the capital gain is charged a tax which helps greatly in minimising the tax that one has to pay. A real estate financial advisor can assist you in choosing the right time to proceed with the sale to fully embrace this concession.
Negative Gearing
Negative gearing means you can offset the costs of owning an investment property with the income that comes from it for a net loss. This loss can be utilised to lower off other income including the salary that one earns, thus the reduction of the amount that will be taxed vigorously. Tax deductibility is widely practiced by property investors in Australia including negative gearing which enables tax breaks on the losses incurred through property investment with the prospect of gaining from future capital appreciation.
It is not easy to understand the various aspects of negative gearing and thus, has to be planned and dealt with expert advice. It is highly recommended to consult with a real estate financial advisor and explain to him all the ideas offered with the intent of presenting their impact and, thus, adjusting the strategy appropriately. They can also offer consultative services to guide you in approach so that they are relevant in the ever-evolving market.
To conclude, the complexity of taxes related to investment properties is a strong factor, which influences your return and objectives; thus, mastering all the essential aspects related to taxation can be helpful. From mileage depreciations and interest deductions to capital gains tax benefits and the negative gearing arrangements there are numerous ways on how one can minimise his/her taxable income and at the same time, maximise the profitability of his/her investment.
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