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[MoreMore Insights] How to Reduce Tax on Investment Properties.



There are different ways to reduce tax liability and increase the returns on investment properties. Investors use the interest paid, rental expenses, depreciation of building, and other ways to save on tax legitimately. Some important ways to save the tax on the investment property are:



1. Maintaining the Record of all the Expenses.


The tax authority expects the investor to record the purchasing price, date and all the relevant expenses which can calculate the gain or loss for the investment properties. That is the simplest way to get a tax break through tax deductions. It is important to keep the evidence of all the receipts and statements presented during the tax time.


2. Recording the depreciation.


A depreciation schedule can help claim back a certain portion if the asset is valued over a certain limit. It helps decrease the tax paid on rental properties. In some instances even the building improvements can be added to save on the tax of the investment property.


3. Negative Gearing.


It happens when the income generated from the property is less than the expenses incurred. It works by reducing the taxable income of the investor by the amount of the loss on the property. Most investors take advantage of negative gearing to reduce the tax paid.

4. Repairs, Maintenance and Capital Works


The repairs on the damages or improvements which are regular maintenance of the property can be added to expenses incurred during a financial year to cut the figure of net revenue from the property, hence reducing the tax paid. If the entire building needs an update then it comes under Capital works, which can be compensated over the years.


5. Depreciating capital assets.


Some items over a certain value are termed as capital assets with a limited life therefore, there can be claimed on the tax over their effective life. Machines like ovens, Washing machines, freezers, etc, fall under this category as they depreciate over time.


6. Lender Expenses.


There are some expenses associated with the borrowing on the investment property which can be deducted from the taxable income to get tax benefits. Expenses such as stamp duty, solicitor fee, loan establishment, valuation fee, LMI can be used to claim the tax. If the value is significant it will be divided over the years.



















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