Smart Property Investment: Tax Depreciation, Managing Rental Properties, and Capital Gains

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Investing in property is a smart way to maximize your cash flow and save for the future. However, navigating through the world of property investments can be overwhelming. There is a lot to learn when trying to grow your business. A property investor should know the different rental yield factors, be knowledgeable about tax breaks, and understand property depreciation. These are essential steps in building an investment property portfolio. Unfortunately, tax laws are not written to be understood easily. Therefore, the process of investing in property comes with a bit of a learning curve.

In this post, we feature beneficial property investment tips.

1. Find Out If You Qualify for Tax Depreciation

Property depreciation is an important factor for rental property investors. Generally, the tax depreciation allows investors to deduct the costs from the taxes of buying and improving a property over its useful life. The Rental Property Depreciation lowers the taxable income, increasing your rental income. In 2017, the Federal Budget introduced some changes that affect property investors. The new tax depreciation laws apply for the properties bought after May 9th, 2017 and touches the plant and equipment categories in residential homes. The government has introduced a limit on plant and equipment deductions.

Under the new regulations, property investors can claim tax depreciation if they meet the following requirements:

  • You signed the property purchase contract before May 9th, 2017.
  • The purchase of the new property was after May 9th, 2017.
  • You hired a property builder to build a new home for investment purposes, and the property remains in your portfolio.
  • The property is renovated, and you have installed new plant and equipment.

Note that you will not be able to claim depreciation on plant and equipment.

2. Hire a Professional to Prepare the Property Depreciation Report

To determine which items are depreciable, you should prepare the property depreciation report. The report must cover all the depreciable items to avoid losing your income. We suggest you hire the services of a professional to help you prepare the property depreciation report. Qualified property inspectors have the knowledge and experience to know which items are depreciable. Besides, experts understand the rate at which the items are depreciable, and they will advise you on how to get more savings.

3. Save through Capital Gains Tax Exemptions and Discount

The Capital Gains Tax (CGT) is the tax you pay on your property capital gain upon selling the investment. The CGT is part of your income tax, and it is not calculated as a separate tax. However, if you made a capital loss, you cannot claim it against your other income. However, you can declare the loss to reduce the capital gain. There are four legal ways to reduce the CGT on an investment property. These are:

  1. Take advantage of being an owner-occupier if the property serves as your primary place of residence. That way, the property is exempted from CGT.
  2. Wait for up to a year to receive a 50% tax discount on the gain you make on the property.
  3. Get the property reassessed before renting it out.
  4. Take advantage of exemptions like the six-year rule.

Using these tips, you can save on Capital Gains Tax.

4. Ensure Best Property Maintenance Practices

Property maintenance is the secret to ensuring your property is attractive to renters. The property must be put into some profitable use, like renting, to get the property depreciation. In that regard, it is helpful if you engage a professional property management company to manage your property. That way, your property remains attractive to the renters.

Conclusion

We have looked at some smart property investment tips. If you are planning to invest in properties, make sure you factor in these tips. For assistance with property depreciation, talk to DEPPRO. We are the leading property depreciation experts serving Australians. We provide reliable and professional services when it comes to the management of your property.