Property investing can be tough enough without the added complication of tax. In this post, we explain how investing can save you tax with a real-life example.
The average investor earning $85,000 who purchases a $600,000 property could save up to $20,000 in tax over 3 years from investing in a new property.
What expenses can you claim?
Management costs such as property agent fees and commission
Body corporate fees and charges
Maintenance costs e.g. cleaning, gardening, pest control, repairs and maintenance
Insurance (building, contents and public liability)
Some legal expenses
Joe builds a house for $600,000 that he wants to use as an investment property. He has a combination of cash and non-cash deductions that he can claim against his expenses.
The cash deductions consist of:
the interest expense paid on his mortgage ($20,626); and
rental expenses relating to property management, council rates and building insurance.
The non-cash deductions include:
depreciation of buildings ($9,375) that consists of the cost of building the property spread over a property life of 40 years; and
depreciation of fittings relating to the cost of internal furniture or equipment; and
loan costs ($514) that include the cost of preparing the mortgage by the bank.
In total, these deductions sum to over $40,000 for the 3 years following the construction of the investment property. The tax credit of over $7,000 shows the amount of income tax saved each year assuming an income of $85,000.
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