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How investment Properties can Lower Your Taxes

How investment Properties can Lower Your Taxes

 

How Investment Properties can Lower Your Taxes

Contrary to what many naysayers believe, real estate is still one of the best investments anyone can make. While many who owned investment property were definitely inconvenienced by the Global Financial Crisis, there never was a collapse as there was in many other countries, and those who held on to their properties are watching with glee as the market climbs back to where it was before the slump.


 

Even those who temporarily “lost” money during the crisis are finding out that, not only did they not lose money, but they actually gained money, thanks to the concept of negative gearing. Negative gearing is a technique where the owner runs a rental property at a loss on paper, but the losses are more than offset by the tax advantages and the long-term appreciation of the property’s value.

The Australian Taxation Office often takes a cynical view of rental or investment property, but with the help of competent, reputable financial management professionals, a property owner can make sure they are operating within the tax regulations, and feel safe that they are creating a more-than-acceptable long-term income from the long-term performance of the property.

 

At Highland Financial, we recommend that you monitor the following to ensure that you can maximise the ROI on your investment property

 

Interest Deductions

More often than not, interest is the largest deduction allowed on an investment property. Any interest that you pay your lending institution on your mortgage is tax deductible. Many property owners attempt “creative accounting” to maximise this deduction; it is a terrible decision, and a recipe for financial disaster.

There is a bit of room to adjust the parameters to the property owner’s advantage, but it is recommended that you seek professional financial guidance, and that you always stay within the law. We can help you maximise your ROI on these deductions, and we can keep you doing things the right way. This prevents negative consequences down the road.

Depreciation of Capital Items

Any investment property undergoes depreciation of capital items. The house itself, peripheral structures, furniture, or appliances are among the items of which value depreciates over time. Generally, depreciation is calculated by dividing the value of the item by the number of years it is projected to last. Depreciation, though, can be tricky, and we always recommend having it calculated by a professional financial analyst. Doing it right the first time can save a lot of money that could be lost by inaccurate calculations, and often by omissions.

Ensure that all of your deductions are legal

The simple version is that cost that is incurred as the result of renting and maintaining a rental property is a legal deduction. However, many people don’t fully understand what is or isn’t legally deductable. Also, many rental property owners fail to keep receipts or document their expenditures. We strongly recommend turning this over to a professional, too. Tax deductions are too important and the laws are too ambiguous to leave anything to chance here. A great tax professional can often find a lot of legal deductions that a homeowner doesn’t know about.

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“My sole purpose is to help clients achieve their financial and lifestyle objectives. To get them from where they are today to where they want to be – as safely and securely as economically possible” Chris Wren
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