When you purchase and own an investment property, it gives you the benefit of saving plenty of tax. You get the advantage of claiming the various expenses and some depreciation against your rental incomes. When you prepare your property depreciation reports, it helps in minimising your tax burden. You must ensure that you manage your investment in the right manner so that it yields you profit. Your investment should also help you achieve your financial goals. An intelligent property investor may adopt several strategies to reduce his tax and increase his tax benefit.
Given below are some key tips that will help you save tax on your investment property:
1. Manage your capital gains:
Capital gains created in a particular year can be reduced by offsetting it against capital losses that you face. If you are keen to decrease the capital gain on the sale of a property, you may think of selling any asset that lost its value. You get a 50% discount on capital gains when an asset is held for over 12 months. Since the saving amount is huge, you should consider the timing of any sale. It is worth noting that the important date for calculating your capital gains is the contract date instead of the settlement date.
2. Manage your capital losses:
The capital losses that you may face in any year can be extended to future years. You may adopt this procedure when there are inadequate gains to absorb in the similar year. The capital losses can be extended to future years for an unknown tenure. You will not be able to carry the losses back. Therefore, if you achieved capital gain, you can initiate a loss to offset it against. You may seek the help of experts to find out your exact property tax depreciation.
3. Claim building depreciation:
It is the depreciation that you may claim on the building itself. How you will be able to claim it will depend on construction costs. For a large number of properties, you may claim 2.5 percent of construction for at least 40 years. You must be able to determine the construction cost. The ideal way to decide it is by hiring a quantity surveyor to make a property tax depreciation schedule for you.
4. Expenses incurred for visits to the property:
It is important to note that if you face expenses related to property visits, you will be eligible to claim them. They will help in boosting your returns.
5. Plant & equipment depreciation:
This is the depreciation of assets within the property. It will include things such as curtains, fixtures, carpet, etc. You need to upgrade or replace these things at some point of time as they tend to depreciate faster.
You may claim the above expenses and reduce your tax burden every year. You must assess the tax depreciation life effectively during this process. If you are conducting any renovation or replacing something major, don’t forget to do a scrapping schedule. The quantity surveyor will be able to calculate how much value is left for a particular item. After that, you will be able to claim that in the form of depreciation.