Rental Property

Is your taxable income over $80,000? Have you been thinking about tax planning or way to save tax? Have you been thinking about getting an investment property? Now is the time to act on it. If your annual taxable income is above $80K, you will be paying 39% income tax (37% income tax + 2% Medicare levy) on every dollar earned over $80K.

However if you had an investment property & it was negatively geared (rental income is less that the expenses for the property), you could then use this loss to reduce your taxable income and pay less tax. Example: If your taxable income is $85,000 for an particular year and tax loss on the property is $7,000.00, then you pay tax on $78,000.00 ($85,000 – $7,000) and not $85,000.00. Also now you will be paying 32.5% income tax + 2% Medicare Levy instead of 37% income tax + 2% Medicare Levy. (Tax rates based on ATO 2014-2015 Income Tax Rates)

Most of the times almost 90% of the investment is supported by the tenants and you are left with almost only 10% of the expenses. However looking at the tax benefit you will get from the tax loss, it pretty much pays itself.

Rental property expenses that you are able to deduct, broadly include interest on loan, property agent fees, council & water rates, property & landlord insurances, repairs & maintenance, cleaning/gardening, pest control, phone, land tax, printing & stationery, postage and depreciation.

If you buy a new property, depreciation is considerably higher for the first few years which would result in bigger tax benefit. Lot of landlords also do interest only payments for the first few years to get the maximum tax benefit.

Lot of people are worried about the initial deposit for buying the investment property, however if you have good equity in your own home chances are you can use that equity to borrow for investment property, making it easier for initial investment. Your mortgage broker will offer more information.

Looking at the bigger picture, investment property is not only for tax planning/tax benefit, you are also adding to your wealth portfolio thus paving a way for a comfortable retirement.

We can help you get in touch with the right people who can help you with your loans and locating a good property. Contact us today to find out how you can save tax with your investment property.

Call Tax Accountants Lynbrook at 1300 300 106 for further information.