If you’re using one or more of your properties to earn income, you have the tax obligations you have to meet. However, that doesn’t mean you have to pay more tax than you have to. With the right property investment decisions, you can keep your tax bill as low as possible.
Whether you’re buying or selling or even currently own property, it’s important to be clued up on the right things to do in order to make the most out of your investment.
Buying a Property
- Set up an easy-to-use record-keeping system as your first priority. Keep all your rental paperwork in one place and make sure you know where to find it if the taxman comes knocking.
- Keep records of every transaction over the period you own the property. Include any loans or settlements made.
- Also keep records of the costs of buying the property such as legal fees, stamp duty on the transfer and initial repairs.
Owning a Property
- Include all your rental income in your tax return.
- You can claim immediate tax deductions for things such as:
- loan interest
- rates and taxes, including council and water rates and land tax
- property management fees
- body corporate fees
- cleaning and gardening
- repairs and maintenance relating to when your tenants were living in the property.
- You can claim tax deductions over several years for things such as:
- capital works, otherwise known as building costs
- borrowing costs.
- When lodging your tax return make sure you:
- include all your rental income
- only claim deductions for periods that your property is rented out or genuinely available for rent
- don’t claim deductions for periods that you use the property yourself
- Scan copies of your receipts to make it easier to store and access them.
Selling a Property
If you sell an investment property or the main residence that you have rented out, remember:
- you may have to pay capital gains tax, even if you transfer the property into someone else’s name
- capital gains tax is the difference between your cost base (costs of ownership) and your capital proceeds (what you receive when you sell the property or the market value when you transfer the property
- if you have claimed a capital works deduction in any income year your cost base should not include these amounts
- if you own the property for more than 12 months, you will be entitled to a 50% discount on tax on the capital gain.
Save Your Tax Bill With Property Investing
Property investment has its own set of tax obligations that you must meet. However, with the right decisions and knowledge about what to do in order to keep your taxes as low as possible, you can save yourself a considerable amount of money.
If all these ideas are overwhelming or if you want someone else who knows what they’re doing to take care of it for you, get in touch with a reputable property investment tax accountant in your area.
Although the tips we’ve given should help make this process much easier for you by teaching you how to leverage properties investments to earn income without paying too much tax.