How do Investment Properties reduce your tax?
- Investment properties can be set up to help reduce the amount of tax you need to pay if you have a [relatively] high disposable income.
- The tax reduction is achieved by intentionally selecting a property where the expenses are higher than the incoming rent. This creates a loss that his then classed as a claimable deduction on your tax return.
- This is commonly known as Negative Gearing.
It is usually not enough to reduce tax, we should also be expecting some capital growth as well.
Your accountant or financial planner will be able to assist with investment and tax minimisation strategies.
Negative Gearing Example
- Property Value: $450,000
- Loan Amount: $470,000
- Loan Term: 30 Years
- Interest Rate: 7.0%
- Loan Payments: $32,900 per year
- Rental Income: $500 per week
| Income | |
|---|---|
| Rent | $26,000 |
| Total Income | $38,020 |
| Expenses | |
| Interest | $32,900 |
| Agent Fees | $1,820 |
| Rates | $800 |
| Insurance | $500 |
| Depreciation | $2,000 |
| Total Expenses | $38,020 |
| Claimable Loss of $12,020 | |
What next?