The Tax Benefits of Investment Properties

24th May, 2022 | Investor

In this article:
If you're looking for a way to learn about the potential tax benefits of an investment property, read on.

An investment property can be a great way to save money on your taxes. In Australia, there are a few different tax benefits that you can take advantage of when you own an investment property. If you’re looking for a way to learn about the potential tax benefits of an investment property, read on.

There are a number of expenses that you can claim on tax for your rental property in Australia. Some of these expenses might include:

  • The interest you pay on your mortgage
  • The cost of repairs and maintenance
  • Any advertising or travel costs related to finding new tenants
  • The depreciation on the value of your property
  • Land tax, strata fees or council rates

Seek Professional Advice

Ensure you seek professional advice from a tax professional about the specific deductions you may be eligible for and how they can save you money come tax time.

To take advantage of these tax benefits, you’ll need to keep track of all of your rental property expenses. Be sure to keep receipts and invoices for everything related to your rental property, so you can easily submit them when it’s time to file your taxes. You will want to make sure your records relating to your investment property are separated from your record of expenses for your personal home.

Tailored, professional advice for your personal circumstances can help you to enjoy many of the tax concessions that are offered to investment property owners. Are you worried about the cost of employing a professional to prepare your tax return? Don’t be. The cost of professional tax work is tax-deductible, so the service essentially pays for itself. With professional help, you can ensure you’re getting the most out of your investment property and minimising your tax bill at the same time.

Positive and negative gearing: how they differ

Positive gearing and negative gearing are two different ways of investing in property. When you ‘gear’ an investment property, it means that you are borrowing money to invest in it. There are two different types of gearing: positive and negative.

Positive gearing occurs when the income from a property investment is greater than the costs associated with that investment, such as mortgage repayments, rates, insurance and repairs. This results in a net profit that can be used to reinvest in more properties or to cover other expenses.

Negative gearing happens when the costs associated with a property investment are greater than the income generated by that investment. This results in a net loss, which can be deducted from other taxable income.

The main difference between positive and negative gearing is how they are taxed. Positively geared investments are taxed as regular income, while negatively geared investments are taxed as capital gains.

Let’s look at an example:

If someone has a negatively geared investment property, they can claim the loss as a deduction from their taxable income. This means that they can reduce the amount of tax they have to pay on their other income.

You look at the income generated from the investment property (such as rent received) less the expenses of owning the home (such as mortgage interest, council rates, property insurance or repairs).

The loss is calculated by looking at the rental income generated from the investment property minus the cost of expenses to own the rental property, such as mortgage interest on repairs to the property. For example, if you own an investment property that generates $40,000 a year in rent, but the costs of owning the property equal $50,000, you have a loss of $10,000. This $10,000 can be subtracted from your taxable income. For example, if someone has a taxable income of $60,000 and they have a negatively geared investment property with a loss of $10,000, your taxable income would only be $50,000.

An investment property can be a useful way to generate cash flow and develop equity, leaving you in a strong financial position with little effort, but it’s important to get the right financial advice. It’s crucial to develop a clear financial strategy. This will help you to ensure that you’re making the most of your investment and getting the best return on your money.

A financial advisor can help you to develop a strategy tailored to your personal circumstances. They can advise you on how much you can afford to borrow, what type of property is best for your needs, and how to maximise your tax benefits.

Get in touch with a Yellow Brick Road local Home Loans expert if you want a trusted expert to advise you on your next steps.

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