Hidden Tax Breaks for Property Investors

Savvy property investors understand that it goes beyond finding the ideal property in a perfect location to win in the investment game. They also know how to use tax breaks or benefits to their advantage to achieve their investment goals.

In this article, we shall share with you a number of these tax breaks and show you how you can benefit from them.

1. Negative gearing. This is probably one of the most common strategies employed by property investors to reduce their taxable income. This happens when the annual cost of the investment is more than the investor’s profits. For example, your property is negatively geared when your loan repayments are greater than your rental income.

But why do this? This is used to lower your overall taxable income, that is your profits from your investment property and your other sources of income. So if your total annual income is $150,000 and you lose $10,000 from the property, your taxable income will be reduced to just $140,000.

With this strategy, you will make money on the property not on the rental income but only after you sell it.

2. Depreciation. You can also claim tax deduction for depreciation. This refers to the wear and tear of a particular asset, which is in this case, your property. This could also apply to other assets within your property such as the furniture.

The concept behind this is that since your asset gets worn out over time, its value also diminishes. When its value diminishes, the tax on it should go down as well.

Calculating for the rate of depreciation and how much tax deduction you can claim can be a complicated matter and deserves a separate article altogether, so it is best that you discuss it with your accountant.

3. The costs of running your business. You run a business when you get into property investment. Thus, you can get tax deductions for your business-related expenses. These expenses include the costs of advertising your business, loan charges, body corporate fees (if applicable), the fees that come with your investment (for example, borrowing costs, mortgage broker fees, stamp duties, etc.), pest control, cleaning, and construction. This is just a partial list of what you can claim, so again, we recommend that you speak with your accountant on what other tax breaks you can take advantage of.

4. PAYG Withholding Variation. You usually have to wait a year before you can receive your tax refund. However, you also have the option to receive it in portions throughout the rest of the year by applying for a Pay-As-You-Go withholding variation. You can, for example, use this to boost your cash flow from month to month, which can be very important if you are running a business.

These are just a few examples of ways you can use taxes to your advantage as a property investor. Your accountant will be able to help you understand these better and open you up to even more tax breaks depending on your investment goals.

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