have i got this right?
say my hubby and i paid $1250 a month in interest alone on two IPs which are both in joint names. Over a year that is $16,250 total. Halve it cos its in joint names and its roughly $8,000 each in tax deductions.
If my husband is in the 30% tax bracket does that mean that he gets 30% of that $8,000 back with his tax return?
im just trying to get my head around taxing. this is the first year ive even looked at it. troy normally takes care of it – but starting this year we are getting an accountant to do it.
thanks
Not really
Because you haven't factored in the income from rent.
Say the rent is $14,000.
Interest is $16,000That means there is a $2,000 loss. Half each.
Husband's share is $1000. If he is paying 30% tax, then approx $300 back.
very approx tho.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
i thought all of the interest paid was tax deductable? not just the loss between rental income and interest?
rental return for the two properties is $29,510 a year combined. interest payments are $16,250 combined.
so halve the income:
my income is $14,755 (rent return is my only income)
troy's income is $14,755 (rent return) and $75,000 (normal job)so cos the interest payments were less than the rental return, does that mean we have no tax deduction from those payments? gosh that sucks – i thought we would be getting a decent amount back at tax time. at least i am finding out now instead of when i get the info back from the accountant.
and i know its all "very approx"
im more trying to figure out how it all works, not trying to pinpoint an amount of return.thanks!
Hi
Yes, all interest is tax deductible – but the income from rent is taxable too.
So lets see
Income is $29,510
less expenses of:
Interest $16,250= a profit of $29,510 – $16,250 = $13,260 (income less expenses)
This is the combined profit, so you should divide by 2 if you own the place 50/50.
You will each have a income from property of $6,630.This is added to other income. If you have no other income you will not pay tax, but since Troy has other income he will be paying extra tax on this. maybe around $2,000 in extra tax.
But wait, there's more.
You haven't included any insurance, rates, repairs, management fees, travel, depreciation etc.
All this will be included in the costs and will reduce your profit. The less profit the less tax. If the profit is negative then you will be negative gearing and Troy can save some tax – but you won't as you don't pay any. But it is unlikely your expenses will be large enough to offset the profit in full, so you may have to pay a bit more.
Incidently, if you had used a discretionary trust you could have reduced the tax to probably nil. The trust could have distributed all the profit to you.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
thanks for clearing that all up
i knew i didnt include all the other stuff, i just wasnt sure i understood how it all worked.
ive heard the term discretionary trust but dont know anything about it all. i guess i can just chalk that up as another avenue i should have explored before it was too late
im getting all the paperwork together for our accountant this week to get our taxes sorted. i havent used one before and i know we werent getting all the money back we were entitled to.
my husband was doing our taxes up until the financial year just ended and he never knew about getting a quantity surveyor to work out the house value and getting deductions on the depreciation. i knew even less and in my ignorance i was letting troy do all our finances. a few months ago i read a book about money, got shocked at what a crap job troy was doing, and fired him from looking after our household finances
just as well he was so good about it, he didnt get offended.since then ive convinced him to leave our finances to people who know what they are doing (financial planner and accountant). and ive completely done over the budget and he now isnt allowed to do anything without checking if it goes by the budget.
anyways – looking forward to seeing what sort of return we get this year
Hi Karen – I can send you my excel spreadsheet that I use – I email it to my accountant prior to meeting with him. Maree
wow that would be great thanks maree!! ill PM u my email. thankyou very much.
ok so i just realised i cant send u a pm
my email is: karen (at) tk day (dot) net …. obviously minus all the spaces and brackets. spam bots are the bain of my existance.thanks again
Hi Karen
And, did you know you may be able to amend previous years tax returns to include the depreciation that you missed?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
yeah my financial planner told me that. im getting the stuff back from the quantity surveyor in the next couple of days – so i was going to ask the accountant about it then. i really wish that i had taken an interest in our finances before now, as we have had the unit as an investment since 05 … and havent been claiming it since then.
karenday wrote:i thought all of the interest paid was tax deductable? not just the loss between rental income and interest?rental return for the two properties is $29,510 a year combined. interest payments are $16,250 combined.
so halve the income:
my income is $14,755 (rent return is my only income)Your net property proceeds is equal to
rental income is $14755 – (half interest costs) – (1/2 council rates) -(1/2 water rates)-(1/2 insurance costs) -(1/2 depreciation costs)-(1/2 repair costs)karenday wrote:troy's income is $14,755 (rent return) and $75,000 (normal job)Troy's net property proceeds is equal to
rental income is $14755 – (half interest costs) – (1/2 council rates) -(1/2 water rates)-(1/2 insurance costs) -(1/2 depreciation costs)-(1/2 repair costs)karenday wrote:so cos the interest payments were less than the rental return, does that mean we have no tax deduction from those payments? gosh that sucks – i thought we would be getting a decent amount back at tax time. at least i am finding out now instead of when i get the info back from the accountant.Not necessarily as you have to factor in all expenses incurred in earning rental income including depreciation which has two forms of depreciation – fixtures can be claimed and depending on the age of the property building costs could be claimed and then fixtures can be also claimed.
However you should not purchase an investment property based on a tax deduction.
As an extreme example say you did have a net loss of $8000 a year after calculating rental income – expenses
Extreme hypothetical example of $8000 negative gearing scenario which is not what you have got.Troy earns less than 80,000 so the marginal tax rate is .30c so say you had $8000 you could claim as an example
So troy paid $8000 in interest to get back $2400 as a tax return. out of pocket by $5600
and for your case
You paid as an example say $8000
You earn nothing as in this example net property income is minus $8000
Tax on no previous income is zero
So you pay $8000 to get back Zero.Now you visit the family office to get a Family payment as part of this example
Family office and centrelink add the 8000 loss back onto your incomes to work out deemed income for payment calculations.
Now remember that troy has actually lost $5600 dollars but centrelink and family office say no you actually earned the full gross income by adding the loss back to troys taxable assessable income.
You now have a deemed income of $8000 according to centrelink and family office even though you are actually $8000 out of pocket as you couldn't claim back money.
Point to remember if you are a parent as well !emailed you Karen. Cheers
duckster wrote:However you should not purchase an investment property based on a tax deduction.Ne'er a truer word was said.
duckster wrote:Now you visit the family office to get a Family payment as part of this exampleFamily office and centrelink add the 8000 loss back onto your incomes to work out deemed income for payment calculations.
Now remember that troy has actually lost $5600 dollars but centrelink and family office say no you actually earned the full gross income by adding the loss back to troys taxable assessable income.
You now have a deemed income of $8000 according to centrelink and family office even though you are actually $8000 out of pocket as you couldn't claim back money.
Point to remember if you are a parent as well !ooh yeah i am. just as well i dont do any fortnightly payments and get it back at the end of the year.
thanks for the info peeps. and also that spreadsheet – its good. im gonna plug all my stuff into it tomorrow so ive got it all ready.
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