Tax Implications of Buying an Investment Property
 

I've been thinking of buying an investment property, but the mortgage would be more than the rental income. Does anyone know the tax implications of this?

Thanks,

Paul.

Re: Tax Implications of Buying an Investment Property
 

Yep :D

You get more tax rebate at the end of each year, based on how much you lost on the IP during the year.

Obviously it's only the Interest and other costs that are taken into account, NOT the principal repayments. Many investors use Interest Only loans.

Re: Tax Implications of Buying an Investment Property
 

I was wondering how much you actually get back... assuming you have an income and the tax you pay on it is more than the loss... do you get part of it back or all of it back?
Has anybody got some good links to more info on this subject?

thanks

Re: Tax Implications of Buying an Investment Property
 

The loss on your investment is added directly to your Gross Income (thereby reducing it). Consequently you do not pay the tax (which you otherwise would at your marginal rate) on the amount of the loss.

Assume you pay tax at the top marginal rate of 47%. You make a loss of $10,000. Your gross annual income is reduced by $10,000 - therefore you are effectively getting a rebate of $4,700, making your net loss only $5,300.

Re: Tax Implications of Buying an Investment Property
 

Have a look at this Property Investment forum: http://www.somersoft.com/forums/

Just about all answers will be found there. ;)

To add to nickyc's explanation, you can increase your actual loss, by using depreciation to create an even larger "paper" loss, to maximise the tax rebate.

Experts in this area can buy the "right" property, and, using depreciation, can turn a negative cashflow property into a positive cashflow property, (after tax advantages) and therefore maintain it without any actual cost to themselves.

Re: Tax Implications of Buying an Investment Property
 

Thanks guys, that's what I thought.

Out of interest, does anyone know how a similar situation would operate in the UK?

Paul.

Re: Tax Implications of Buying an Investment Property
 

I am not sure about this, but I believe that losses cannot be set against earned income in the UK ?

Consequently, UK Landlords have to charge higher rents to make sure they make a profit.

Re: Tax Implications of Buying an Investment Property
 

That's what I was thinking given the tax set up back home, but wasn't entirely sure.

Re: Tax Implications of Buying an Investment Property
 

tx

Re: Tax Implications of Buying an Investment Property
 

When you sell the investment property, capital gains tax if youve owned it more than 12 months is only on half the profit value. So say the house goes up $100,000 you only pay tax on $50,000 profit.

Think the gov encourages rentals here so they dont have to provide that much public housing.

Re: Tax Implications of Buying an Investment Property
 

ABC, I'm doing some maths on this. Any idea which depreciation methods are allowable?
And also I'm guessing that not the whole property is depreciatable (Is this a word?), so have you got any idea what is and what isn't?
Thanks,

Paul.

Re: Tax Implications of Buying an Investment Property
 

You would need to use one of the specialist depreciation companies, as the tax office do not look kindly on people doing it themselves.

Have a read of this thread on Depreciation options: http://www.somersoft.com/forums/showthread.php?t=23676

Depreciation is calculated on the building itself, and the rate, 2.5% or 4%, depends on the construction start date. But other fixtures and fittings are calculated independently.

Re: Tax Implications of Buying an Investment Property
 

Thanks mate, I was editing my question as you wrote. I'll have a look.

Thanks alot,

Paul.