Investing in property is not only a smart way to build wealth but also an effective strategy to minimise tax. Here’s a simple guide to help you understand how to maximise your tax savings through property investment
Negative Gearing
Negative Gearing is a popular strategy where the costs of owning a rental property exceed the rental income, creating a loss. This loss can be offset against your other income, reducing your overall taxable income. The benefits include:
Reduced Taxable Income: Lower your taxable income by deducting property expenses
Capital Growth Potential: Long-term property appreciation can outweigh short-term losses
Depreciation Deductions
Claiming Depreciation Deductions allows you to deduct the decline in value of items/fittings etc in your investment property over time. Engage a qualified quantity surveyor to prepare a depreciation schedule. The benefits include:
Plant and Equipment: Deduct items like appliances, carpets, fittings etc
Capital Works: Deduct construction costs over 25-40 years
Interest Deductions
Interest payments on loans used to purchase an investment property are fully deductible. Ensure that the loan is structured properly to maximise deductible interest expenses.
Property Management Expenses
Property Management Expenses such as repairs, maintenance, and property management fees can be claimed as immediate deductions. Keep detailed records of all expenses to ensure you claim everything you’re entitled to.
Capital Gains Tax Discounts
When you sell an investment property, Capital Gains Tax is applicable on the profit. However, if you hold the property for more than 12 months, you may be eligible for a 50% CGT discount. This significantly reduces the tax payable on your capital gains.
Tax Variations
Consider applying for a Tax Variation through the Australian Taxation Office (ATO). This allows you to reduce the amount of tax withheld from your salary, providing you with more cash flow throughout the year instead of waiting for a tax refund.
By leveraging strategies like Negative Gearing, Depreciation Deductions, Interest Deductions, Property Management Expenses, Capital Gains Tax discounts, and Tax Variations, you can significantly reduce your tax liability while building your property portfolio.
Maximise your tax savings through property investment with help from our team at The Brokerage Connection. Our Buyers Agents are here to help you navigate the complexities and lead the way so your experience is stress-free and seamless. Contact us today!