Tax Implications of Buying an Investment Property
#1
She's Diddy, He's Not
Thread Starter
Joined: Apr 2004
Location: Gold Coast - just like Felixstowe
Posts: 2,454
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.
Thanks,
Paul.
#2
Guest
Posts: n/a
Re: Tax Implications of Buying an Investment Property
Originally Posted by diddy
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.
Thanks,
Paul.
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.
#3
Forum Regular
Joined: Jul 2003
Posts: 235
Re: Tax Implications of Buying an Investment Property
Originally Posted by ABCDiamond
Yep
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.
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.
Has anybody got some good links to more info on this subject?
thanks
#4
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.
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.
Last edited by NickyC; Feb 28th 2006 at 11:54 am.
#5
Guest
Posts: n/a
Re: Tax Implications of Buying an Investment Property
Originally Posted by jwatsonoz
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
Has anybody got some good links to more info on this subject?
thanks
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.
#6
She's Diddy, He's Not
Thread Starter
Joined: Apr 2004
Location: Gold Coast - just like Felixstowe
Posts: 2,454
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.
Out of interest, does anyone know how a similar situation would operate in the UK?
Paul.
#7
Guest
Posts: n/a
Re: Tax Implications of Buying an Investment Property
Originally Posted by diddy
Thanks guys, that's what I thought.
Out of interest, does anyone know how a similar situation would operate in the UK?
Paul.
Out of interest, does anyone know how a similar situation would operate in the UK?
Paul.
Consequently, UK Landlords have to charge higher rents to make sure they make a profit.
#8
She's Diddy, He's Not
Thread Starter
Joined: Apr 2004
Location: Gold Coast - just like Felixstowe
Posts: 2,454
Re: Tax Implications of Buying an Investment Property
Originally Posted by ABCDiamond
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.
Consequently, UK Landlords have to charge higher rents to make sure they make a profit.
#9
Forum Regular
Joined: Jul 2003
Posts: 235
Re: Tax Implications of Buying an Investment Property
tx
Originally Posted by nickyc
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.
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.
#10
Lost in BE Cyberspace
Joined: Apr 2004
Posts: 10,375
Re: Tax Implications of Buying an Investment Property
Originally Posted by diddy
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.
Thanks,
Paul.
Think the gov encourages rentals here so they dont have to provide that much public housing.
#11
She's Diddy, He's Not
Thread Starter
Joined: Apr 2004
Location: Gold Coast - just like Felixstowe
Posts: 2,454
Re: Tax Implications of Buying an Investment Property
Originally Posted by ABCDiamond
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.
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.
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.
Last edited by diddy; Mar 1st 2006 at 12:59 am.
#12
Guest
Posts: n/a
Re: Tax Implications of Buying an Investment Property
Originally Posted by diddy
ABC, I'm doing some maths on this. Any idea which depreciation methods are allowable?
Thanks,
Paul.
Thanks,
Paul.
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.
#13
She's Diddy, He's Not
Thread Starter
Joined: Apr 2004
Location: Gold Coast - just like Felixstowe
Posts: 2,454
Re: Tax Implications of Buying an Investment Property
Originally Posted by ABCDiamond
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.
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.
Thanks alot,
Paul.