Can you believe we’re nearly half way through 2016?? With the end of financial year squarely in our sights, we thought we’d share some great tax tips for maximising your investment property deductions.
If you are expecting to earn less income next year, consider prepaying your interest in advance. That way you can claim a larger deduction this financial year (thereby reducing your tax) leaving you more free cash for the following year when you might need it the most.
Interest is by far the largest tax deduction in a negative gearing arrangement. Interest charged on investment loans is tax deductible, however the principal (capital) repayments are not. If you are paying both principal and interest, you will need to determine the interest component, which most banks highlight on their loan statements.
If your investment property was built after mid-1985, or if you are completing a major renovation then consider getting a depreciation schedule from a quantity surveyor. The tax savings claimed through deduction can be thousands each year and as a bonus their fee is tax deductible as well.
This tip mainly applies where you have negatively geared your investment property. Normally your investment property expenses reduce your personal tax payable at the end of the financial year to the hopefully deliver a larger tax refund.
But wouldn’t be nice to get that refund upfront? Ask your employer to reduce the PAYG tax withheld on your wages or salary paid during the year to spread the refund over the current financial year, which should help your cash flow.
Did you know that you can claim the cost of travelling to your investment property to inspect it? Even the costs incurred to collect the rent? Car hire, airfares and accommodation can all be claimed; however, you will need to remove any part that relates to a personal component, like an extended trip for a family holiday, so you can’t exactly get a free trip to Hawaii!
Postpone capital gains tax
If you’re looking to sell close to the end of the financial year, considering exchanging contracts just after 1 July where practical, that way you have postponed the capital gain tax payable for another year.
If you hold your investment property for more than 12 months, you may be entitled to reduce the capital gains made on the sale of the property by 50% before tax.
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The information contained in this article is general in nature and does not take into account your personal situation or objectives. You should not act on this information in any way before seeking professional taxation advice.