5 tax tips for successful real estate investors at EOFY
The end of financial year is an excellent time to think about your real estate investment strategy.
With many Tax deductions related to investment properties, it’s important to make sure that your investment is functioning as optimal as possible for you.
Our Property Management Team has put together 5 key tips to making the most of your EOFY investment opportunities.
1.Pre pay your interest
Pre paying interest for the year ahead may be an option to property owners (subject to the conditions of your lender), in particular if you have a fixed rate loan. The benefit of pre-paying the interest means you can push next financial year’s interest payments into this year and then claim it back as a deduction on your tax return for this year.
You will need to have the funds upfront, however this could potentially lead to a reduction in your taxable income. This is particularly beneficial if you are on a high income and have a large loan. It could mean a substantial saving.
2. Claim depreciation
Depreciation is a key element of your investment property strategy. While depreciation tax breaks are higher on newer properties, they’re also available for older/existing properties.
A rental property depreciation schedule is a report that clearly details the tax deductions a property investor can claim for the annual depreciation of their investment property (building, fixtures and assets).
Rental property depreciation schedules assist investors to claim the maximum tax deductions available for the annual depreciation of their investment property (referred to as capital allowance and depreciation by the ATO).
Annual deductions are typically in the thousands of dollars every year, for up to 40 years.
Specifically, a depreciation schedule will:
- ensure that your claims for capital allowance in accordance with ATO legislation;
- save you time and effort in trying to calculate these deductions for yourself;
- save you money with your accountant, as they simply apply the results from the schedule;
- ensure that your deductions are maximised to create the greatest cash flow result for your investment.
If you need help in sourcing a depreciation schedule, we highly recommend BMT Tax Depreciation Quantity Surveyors.
3. Claim expenses
Many rental property expenses often go unclaimed. The most forgotten deductions are: bank fees, gardening and lawn mowing, pest control, property management fees, travel and car expenses for rent collection.
You can also claim your borrowing expenses – this includes lenders mortgage insurance (LMI), as well as any loan establishment fees, valuation fees, mortgage broker fees and even any stamp duty you needed to pay on the mortgage itself.
So, if you’ve taken out a loan to purchase an investment property this financial year – or even if you’ve refinanced the loan on your existing investment property – be sure to make the most of this tax deduction.
More than ever before it’s important that you get good advice from your accountant or financial planner on what you can and can’t claim, as well as on structuring your investment for maximum effect.
4. Hold on to your receipts
Your receipts will be used by the ATO to verify the money you’ve spent so make sure you keep them on hand. Everything you spend on your investment property should be recorded to allow for maximum deductions.
5. Time any Capital Gains Tax events right
If you plan on selling an investment property, you may have to pay capital gains tax (CGT) on any profit you make. This means your profit will be treated as income and taxed at your marginal tax rate.
Generally speaking, you will receive a discount of 50% on any capital gain you made on investment properties you hold for longer than 12 months. The CGT payable will be based on your income in the tax year you exchange contracts. If you want to keep your taxable income down this financial year, you could consider pushing exchange into July so that your profit is assessed against next year’s income
Make sure you speak with your accountant about your specific circumstances.
Getting the right advice is key to making smart choices about your investment properties.
The combination of a great property manager and savvy accountant, are as we refer to as the “Dream Team” could save you thousands of dollars every year.
For any help or advice, 7 days a week, please feel free to contact our exceptional Property Management Team, we would love to hear from you 🙂