For taxation purposes, there are three major types of expenditure property investors should be aware of, all of which are subject to different taxation treatments.

• Expenses that cannot be claimed (e.g. utilities charges, and acquisition and disposal costs).
• Expenses for which immediate deductions can be claimed (e.g. rates, insurance, legal expenses and repairs).
• Expenses for which deduction claims can be made over a number of income years (e.g. borrowing expenses such as stamp duty, title search fees and capital works).

When considering the deductibility of renovations, such as replacing a bathroom, the effective life of the existing structure must also be factored in. Houses are generally depreciated over a period of 40 years (at 2.5% per year), but the residual value of the existing structure is also taken into account.

Example

Tony owns a rental property built 20 years ago, and needs to replace the now obsolete bathroom at a cost of $20,000. The original value of the bathroom was assumed to be $8,000, with the result being depreciation of $4,000 (being 2.5% times 20 years times $8,000), and a residual value of $4,000. As a result, Tony will be able to claim a tax deduction for the $4,000 residual value, plus 2.5% of the renovation cost ($375), for a total deduction of $4,375 this income year.

Timely and quality maintenance of investment properties can provide significant benefits through the improvement of rental yields. However, for taxation purposes, the treatment of these expenses can vary, so it is worth discussing with your accountant or adviser before you commit to expenses.

For more information, contact us at Leenane Tempelton on 02 4926 2300 or email success@leenanetempleton.com.au

The post Investment properties – know your expenses appeared first on Newcastle Financial Planners & Financial Advisors.

Negative gearing allows property investors to claim any shortfall between their income and expenditure on an investment property as a deduction against their total taxable income.

Most property investors are aware of the usual expenditure deductions that they can use to offset any income earned by an investment property. Regular costs such as maintenance, repairs, interest on loans and management fees can all be used to offset rental income.

However, there are a few lesser known tax strategies that property investors may care to look at as June 30 approaches:

Refinancing your mortgage

Refinancing your mortgage usually incurs a couple of one-off costs and fees. Investors who are planning on refinancing their mortgage may care to consider doing so before June 30 in order to claim these costs as a deduction in the 2014-15 financial year.

Pre-pay interest

Property investors who have sufficient funds to pre-pay interest on a loan can do so and claim the deduction in the current financial year. It is also possible to pre-pay (and claim a deduction for) your upcoming property insurance premiums.

Bring forward maintenance expenditure

If there are maintenance tasks that you know will need to be completed on an investment property, then you may wish to complete them before June 30 in order to minimise your tax bill in the current financial year.

Stay on top of your paperwork

Make sure that you are aware of the depreciations on any fittings or repairs, as well as any other costs you have incurred, for example, strata fees, management fees or rental losses.
Property investors are highly advised to discuss their tax situation with an accountant to ensure that their activities are compliant and that tax savings are maximised.

Our accountants are ready to help you and discuss these tax tips for property investors in more detail if need be.

Call (02) 4926 2300 or email us.

For more tax tips for property investors please do not hesitate to contact the team at Leenane Templeton.

The post Tax tips for property investors appeared first on Newcastle Financial Planners & Financial Advisors.

Negative gearing is arguably the most generous tax break available to Australian property investors.

Whether you’re an established property investor or contemplating purchasing your first investment property, you may care to familiarise yourself with the way that negative gearing works.

A property is considered to be negatively geared if the owner has taken on debt in order to acquire it and the net rental income is less than the costs of maintaining the property (including the interest paid on the loan).

Investors with negatively geared properties are able to claim the shortfall between their associated costs and rental income as a deduction against their total taxable income.
In the event that your taxable income is insufficient to absorb the difference, then the remaining deduction can be carried forward to the next financial year.

Many Australians would not be able to enter the real estate market without taking on some form of debt. While taking on debt allows you to make investments that would otherwise have been beyond your reach, it also ramps up your risk profile because you will have a greater amount invested. Furthermore, if your investment property is underperforming, you remain responsible for making loan repayments.

Obviously, it is preferable to have an investment property that is positively geared, meaning that rental income covers loan repayments, interest and routine maintenance. Paying tax on a profit is typically considered to be a better option than minimising your tax liability while making a loss. Investors who have long term negatively geared properties are generally hoping to incur long term profits from capital growth.

Even if you think that your investment property will be positively geared, understanding the benefits of negative gearing can give you a little peace of mind. You know that if the property does lose money, you will be able to offset the loss against your taxable income.

When a property is positively geared, the income earned is added to your total taxable income. As such, it is taxed at your marginal tax rate. The same applies to any capital gain that you make from selling a property.

Our team of accountants are at hand to help with any questions you may have in relation to negative gearing and property investment.

Call (02) 4926 2300 or email us.

To discuss negative gearing for property investors call Leenane Templeton.

The post Negative gearing for property investors appeared first on Newcastle Financial Planners & Financial Advisors.