3/6 Can my investment property really reduce my tax? Here’s how investment properties unleash tax benefits.

Hello Property Investors!

Do you truly understand how your taxes work? Most people think they do, but when asked a few probing questions, confusion sets in. Don’t worry, you’re not alone. Our tax brackets and property investment concepts aren’t taught in schools.

Here’s what you need to know:

In Australia, we operate on a marginal tax system, meaning the more you earn, the more tax you pay.

Moving into a higher tax bracket doesn’t mean your entire income is taxed at the new rate. Only the portion exceeding the previous bracket is subject to the higher rate.

Rental income increases your taxable income, but owning an investment property brings valuable deductions like depreciation, which can reduce your tax liability and potentially result in a tax return.

Let’s put it into practice with an example:
Assume you earn $100,000 per year and own an investment property worth $575,000 with a $517,500 mortgage. The rental income is $30,680 annually.

Deductions include interest and bank fees on the mortgage ($31,050), rental management fees ($3,068), insurance, rates, maintenance, and miscellaneous costs ($3,800), and depreciation ($20,000). Total deductions amount to $57,918.

With deductions, your taxable income is reduced to $78,083. Falling into the 32.5% tax bracket, your total tax payable is $14,114.65. If you already paid $22,967 tax on your salary, you may be eligible for a refund of $8852.35.

By understanding your taxes and utilizing deductions, you can enhance your financial position.

Imagine having an additional $1,614 in profit per year from your investment property, equivalent to $31 of passive income per week.

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Next up, we’ll discuss how to build a portfolio from scratch.

~The Integrity Team