Investment property is one of the options that come with major advantages. As an investor, understanding these advantages can help maximize tax returns and minimise your tax bills. Let us get straight into these 5 advantages:
1. Negative Gearing
Negative gearing is one of the most known tax advantages that real estate investors enjoy. In a nutshell, you get to offset your income from your investments against your losses which can later be deducted from your personal income. It helps reduce the amount of tax you have to pay for the year and it also helps build wealth through property investment.
If you are an Australian resident, you can use negative gearing on more than one property provided that the rental incomes from all these properties combined still fall under your personal deductions.
2. Tax Deductions against Rental Income
Another tax advantage of being a real estate investor is the ability to get deductions for your rental income. Well, you need to keep in mind that it includes deductions for operating expenses, depreciation, and repairs. You can claim these expenses when you are preparing your tax returns or when you want to declare these expenditures against your tax.
3. Capital Gains Tax Discount
Capital gains tax is one of the biggest disadvantages that property investors have to deal with. Fortunately, if you are an Australian resident, you can offset 50% of your capital gain made from the sale of a residential investment property against your taxable income for that year. This makes it easier for investors to manage their capital gains tax.
With the capital gains tax exemptions, real estate investors have a better chance of saving more for their future by selling their properties in the future.
The discount of 50% is subject to ATO conditions primarily being that the property should have been held for at least 12 months or else full capital capital gains apply.
In some cases an investment property may also be fully exempt from capital gains to ATO conditions. Speak to our accountants to finalise the best case scenario for your property.
4. Depreciation
The depreciation of the rental property is another major advantage that Australian investors enjoy. It refers to the decline in value or physical condition of a property over time due to wear and tear, aging, damage, etc. This type of depreciation can be claimed against your taxable income for any given financial year.
Similar to other assets, that depreciate and go down in value, you can claim depreciation of buildings, fixtures, and fittings which includes carpets, lightings, fans, stoves, hot water systems, etc.
To be able to claim depreciation you will beed to get a professional depreciation report which when bought once can be used for the life time of the depreciable asset. It allows you to claim maximum for each depreciable item in the property. It also details out whether an asset can be depreciated or not. Some properties can not be depreciated and are subject to ATO conditions.
5. Withdrawals from Equity Loans are Tax-free
Equity loans refer to the money that you borrow on top of your mortgage. If you have a portion of the equity in your rental property, you can access it by way of an equity loan. By using this equity, investors can do a lot with their properties such as renovating them or buying new properties without having to sell existing ones.
One great thing about equity loans is that the withdrawals are tax-free. If you want to build wealth with rental properties, then you can aim for an amount of money that is equal to your property’s value after deducting the debt.
Investment property is one of the major advantages when it comes to taxes in Australia. As long as you are legally allowed to own it, you can save on taxes for your rental income, capital gains tax exemptions, depreciation. With these key advantages in mind, investing in real estate becomes a lot easier and more rewarding.
Also, when a withdrawal is done from equity of an investment property for use in upgrading or renovating the same property, the interest on such loan may be claimed for tax purposes apart from depreciation on assets bought to upgrade or renovate the property subject to ATO conditions.
Get Professional Help with Your Tax Returns
At Accurate Business & Accounting Services, there are professional tax experts who are specialized in working with property investors. We have the necessary knowledge and skills when it comes to dealing with rental income, negative gearing, and capital gains tax exemptions, depreciation deductions, etc.
Call us today for more information and professional services regarding rental and investment property tax returns and more. .