I want to show you how to lower your taxes on your positively geared property investments. These 7 techniques will help you legally save money on tax which means more money in your pocket.
If you have positively geared property investments, then the chances are that you’re paying tax on that income that you’re generating from those properties. You can offset this taxes with expenses or on paper losses, which means at the end of the financial year you are paying less tax than you would otherwise.
Disclaimer: I am not a certified accountant. I am not a tax lawyer. These are just general tips to give a general understanding. They’re not to be used as financial advice or taxation advice. Always speak to a professional accountant or a taxation officer before you make any financial decisions.
Let me jump into the seven ways to lower your taxes on positively geared investments.
Depreciation is when you’re claiming, as a loss, the falling value of particular parts of your asset. In properties such as a house you have things like lighting, things like architraves, things like fixtures, things like carpet. All of those things you might pay for up front. Let’s say you pay $1,000 to get your carpet done in your living room. Over time, as that carpet gets used, and it gets dated, and it get’s scuffed, that carpet falls in value.
What you can do is claim that falling value as depreciation and offset that against your income. Say that $1,000 carpet…I don’t know how much you can claim, but say you could claim 10 percent of that in the first year. Well, you could claim an effective loss of $100 against your income and not pay tax on that $100.
The best way I’ve found to do it is to get a depreciation schedule done. You can get a quantity surveyor in who will do a professional depreciation schedule that is completely legit. They will show you what you can claim, how much you can claim and they will give you a schedule for the coming years to claim those items.
2. Maximising Your Deductible Expenses
There are certain things, like you can visit your property once or twice a year and pay for the accommodation while you stayed there visiting that property. Maybe it’s one night.
There are other expenses as well that you can claim, things like paying your accountant, things like paying your real estate agent. All of these deductible expenses make sure you’re deducting them with your pretax dollars.
3. Interest Only Loans (and pay off your home loan instead)
The money you’re paying on your mortgage for your investment property, you can offset against the income. But money that you’re paying on your house is not necessarily tax deductible because it’s not an investment.
What you can do is, if you keep an interest only loan, it means you’re going to be maximizing your tax reductions because you’re paying just interest on the loan, and you’re not paying money off the loan. Also, it means you can then use that money to fund other areas that aren’t tax deductible, like paying off your home loan, or paying off your credit cards, and things like that.
So keeping an interest only loan, and then paying off your house or your credit card instead.
4. Deliver Ongoing Maintenance
You can’t actually claim when you improve the property, like when you put in a new kitchen, but you can claim maintenance expenses if you’re just paying to maintain the property.
By paying to maintain the property, that’s a deductible expense. It also keeps the property up to a good standard so you can keep the rent coming in, and you can keep increasing your rent with the market as well.
5. Provide Extra Services
There are things like you might pay $50 every fortnight to get the lawns mowed in the property instead of mowing it yourself or getting the tenant to do it. This can help you increase your rent, but that $50 is effectively a tax deductible expense. So look to provide extra services that you can use as a tax deduction.
6. Borrow Against Equity Instead Of Selling
When you sell your property, you have to pay capital gains tax. If you don’t want to pay that tax or if you borrow against the equity, you’re not selling so you’re not paying capital gains tax.
If you borrow against the equity to use for investment purposes, well then the interest repayments on that mortgage will also be a tax deductible expense because they’re used as a way to generate income.
Borrowing rather than selling can be a way to minimize your tax expenses. Obviously, there’s a lot more thought process that needs to go into whether you hold or sell rather than just looking at the tax.
7. Talk To Your Accountant
Accountants will know great ways for you to save money on your taxes, especially accountants that specialize in property. Go and speak to one of them. Find out what are the areas you can be claiming more money and they will help to show you that.
BONUS: Get A Scrapping Schedule Done
And just a bonus one, which I’ve just thought of now, it’s called getting a scrapping schedule done. This is going back to your depreciation and a quantity surveyor.
If you’re doing renovations on your property, you can have what’s called a scrapping schedule done. Say you’re ripping out the carpet, you’re ripping out the old kitchen, you’re ripping out the lighting, and you’re replacing it with all new stuff.
What you can do is get a quantity surveyor into your property before you do that. He can show you the remaining value in your carpet, in your kitchen, in your lighting, in all of those things. As you destroy them and remove them out of the house, you can claim those as a loss. You’re effectively losing all of that value, because you’re replacing it with something new. A scrapping schedule is done on that, which you can then use to offset your taxable income for that year.
This has been how to lower your taxes on positively geared investments. I hope this has been a good overview, and you’ve got some good ideas out of this. Again, I’m not an accountant. Just take it as an educational topic, not as financial advice or taxation advice.