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These Simple Tax Tips Could Save you Thousands

By Rhys Southern

Do you own or are you looking to purchase an investment property to rent out? If so, you could be enjoying the benefits offered by owning an investment property, such as having steady capital growth and income. Aside from that, it also offers you substantial deductions, reducing your overall taxable income.
Today we will be discussing the benefits of owning an investment property and other relevant information regarding the topic. Read on to learn more.

How Tax Deductions Reduce Your Tax Bill

A tax deduction is all about reducing the amount of money you must pay in income tax.
For example, suppose your total income is $75,000, and you donated $1,000 to your chosen charity in the same tax year. In that case, you will receive a tax deduction of $1,000. So, instead of having a taxable income of $75,000, your taxable income will be reduced to $74,000.

Types of Tax Deductions for an Investment Property

Owning an investment property can be a very profitable way to invest your money and secure your financial future through regular income and capital growth. A lot of the expenses involved in owning an investment property are tax deductible.
In this section, you will learn the different types of tax deductions for an investment property.

Loan Interest

Most homeowners are using a mortgage to buy their house. This is also applicable to landlords with rental properties. Landlords who use a mortgage to purchase an investment property assume that the largest deductible expense are the mortgage repayments.
To make things clear, you cannot subtract the full amount of your mortgage payment from your tax; however, you are able and encouraged to deduct your interest charges. This means any interest you pay on your mortgage is considered a tax write-off event, meaning the full amount is deducted from your taxable income.

Insurance Premiums

Insurance premiums are an essential part of having an investment property, and as an essential expense they are fully tax deductible. This deduction is applicable for liability insurance, special peril insurance, and ordinary homeowners insurance.

Professional and Legal Fees

As the owner of an investment property, you can deduct professional fees related to your rental investment. For example, if you are using computer software or a CPA in preparing the tax return, make sure to include these fees in your expenses to reduce the cost of your tax bill. If you are using a property manager to maintain your property, these charges can also be written off from your tax.

Types of Costs You Cannot Use as a Tax Deduction

  • Land Transfer Taxes – When you are purchasing an investment property, you must pay the land transfer taxes, however this is a non tax deductible expense.
  • Mortgage Principal – Deducting the principal mortgage payments to your loan or mortgage on a rental property is not allowed.Penalties – Deduction of any form of penalties included in your notice or reassessment or notice of assessment is not allowed
  • Value of Your Labor – Another form of the cost you cannot use as a tax deduction is the amount of your labor or services.

Benefits of Using a Property Manager When Renting Out an Investment Property

Even though you are the owner of the investment property, you still need the help of a professional. This is where Ray White Smithfield comes in. We can help you add a substantial amount to your investment, handle all communication and issues with tenants, do regular inspections and ensure quality tenants that stay long term.
The following are the notable benefits of using a property manager when renting out an investment property.

Higher Quality Tenants

Finding a good tenant is at the top of every landlord’s priority list. Due to the tenancy laws in Queensland, it can often be very difficult to remove a bad tenant. That is why the need to screen your tenants thoroughly is essential to ensure you find tenants who will pay on time, rent for a longer period, and not cause or bring any problem to your property. That is where you will need a professional property manager. Having rented hundreds of properties, our Property Managers at Ray White Smithfield know how to differentiate high-quality from low-quality tenants.

Better Tenant Retention

A professional property manager will help you increase tenant retention by ensuring that your tenants will have a better experience living in your property. To achieve this benefit, you need to integrate a systematic and consistent program that only property managers can do.

Assistance with Taxes

A professional property manager helps you understand the types of tax deductions that are allowed to be claimed. They will also assist you in preparing the important documents and forms needed to claim those amounts. In addition to that, the fees you will pay for the property manager will be included in your tax deductibles.

Minimising the expenses of your Investment

Professional property managers perform regular inspections of your property, providing you with feedback and suggestions on any repairs and modifications needed on your property before they become a larger and more expensive problem.

Being an investment property owner is an ideal way to increase your wealth and plan your financial future. However, once you have purchased your investment property, managing it correctly is an important factor in how successful your investment will be.
Our years of experience has shown us that Investment Property owners who try to save the small amount of management fees (remember, these are tax deductible fees) by not utilising a professional Property Manager often actually end up losing out in the long term with less rental income and undesirable tenants that can either fall behind in their rent or cause damage to your property.
To ensure your financial future is in good hands, finding an experienced property manager is essential. Ray White Smithfield’s years of experience and reputation as trustworthy and competent property managers will give you the best opportunity to successfully grow your real estate portfolio and secure your financial future.

Disclaimer:
This article does not take into account your personal situation. All information in this article is general information and not specific advice. Consult a qualified and licenced accountant to discuss a tax plan tailored to your needs.

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