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Tricks for Lowering Your Property Tax Bill

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    The annual property taxes that you have to pay are a significant expense that is sometimes disregarded by many. Therefore, it is essential to learn how to lower your tax payment, particularly if you are living on a limited financial plan.

    There are a lot of different things you can do to lower your property tax bill, such as educating yourself on tax exemptions for senior citizens and people with disabilities, becoming familiar with the distinctions between commercial and residential properties, or looking into home improvements such as installing an energy-efficient furnace or adding insulation to your home. Check out this post on our site right now for much more useful advice on how to get started.

    The real estate industry in Australia is highly competitive, and it might be difficult to determine how to differentiate oneself from the other participants.

    One approach to accomplish this is by reducing the amount of property tax you are required to pay. There are a lot of different ways that you can lower the amount of taxes that you owe, but some of the strategies will only work if you live in Australia. This piece on my blog will walk you through three distinct strategies that you may implement to lower the amount of property tax you owe in Australia.

    Top Financial Advice for Real Estate Investors

    Property investors need to get themselves ready for the end of the financial year (EOFY) by gathering all of the pertinent information that will aid them in appropriately submitting their income tax returns and making claims for refund deductions. The EOFY is quickly approaching.

    Recent events, most notably the COVID-19 outbreak, have had a huge impact on the real estate market, particularly on investors. This is especially the case for those who are looking to buy investment property. What types of changes might we anticipate seeing as a consequence of these occurrences in the way that Australian investors are ready to file their taxes?

    Your Investment Property reached out to Mark Chapman, the head of tax communications at H&R BLOCK, to enquire about how the current problems would impact the filing of taxes this year and how property investors might best manage the evolving situation.

    What Effects, if Any, Will the Coronavirus Epidemic Have on Your Tax Claims and Returns?

    The COVID-19 outbreak has had a substantial influence on the financial situations of many people in Australia, notably those who invest in property. The majority of landlords and tenants have been encouraged to create their own arrangements in terms of rental repayments. This comes despite the fact that state governments have placed a moratorium on evictions.

    According to Chapman, even if you negotiate with your renters to postpone or reduce the amount of rent they pay you, you will still be entitled to claim as a tax deduction any expenses that you incur as a result of owning and maintaining your rental property.

    "If you later get back-payments of rent after the crisis has passed, these amounts will be taxable when received," he stated. "This applies even if the situation has been resolved." "In the event that you subsequently receive back-payments of rent once the emergency has been resolved." Even if your bank delays loan repayments because to COVID-19, you are still able to claim a deduction for the interest component of the loan because the expense is still regarded to have been incurred by the landlord.

    What is the single most important piece of information you need to have regarding your taxes?

    Real estate investors really need to be organised in order to successfully file their claims and tax returns to the appropriate authorities.

    According to Chapman, the most important rule to follow is that "if you can't substantiate it, you can't claim it." As a result, it is absolutely necessary to maintain all of the receipts, invoices, and bank records associated with property transactions. In addition, it is vital to maintain proof that your home was offered for rent, such as rental listings for the property in question.

    Investors in real estate have a duty to make every effort to confirm that all records may be accessible and are in a suitable shape. This responsibility extends to the documents themselves as well. In addition to this, they ought to seek for copies of missing invoices for them in order to maximise the amount of money that they are eligible to collect as a refund.

    As a consequence of COVID-19's consequences, To add insult to injury, Chapman issued the following warning: "Also, be aware that both your income and expenses may look significantly different to average." "You should get ready for this."

    At tax time, what are some of the deductions that real estate investors are eligible to take?

    According to Chapman, the biggest expense you may write off as a tax deduction is the amount you pay towards your mortgage each month. But keep in mind that the interest is the sole component that is deductible.

    In addition to the interest that is associated with the purchase of the property, he stated that "you are allowed to deduct interest on loans taken out to carry out renovations, purchase depreciating assets such as furniture, perform repairs or carry out maintenance, or purchase land on which a house is to be built." This is in addition to the interest that was accrued during the time when the property was being purchased.

    The entire list of expenses that you can deduct is as follows:

    • Including the fees that are passed on by renting agents, advertising for prospective renters
    • At the conclusion of a rental agreement, a final cleaning is required (including removal of rubbish)
    • Real estate and property management agents (including management fees)
    • Taking care of the garden and the lawn (including felling or pruning trees)
    • Costs linked with the collection of rent and the payment of property expenses, including those for the secretary and the bookkeeper
    • Charges levied by the bank on the account that is used to receive rent and make payments
    • Taxes on the land and the council
    • Insurance (building, contents or public liability)
    • Verification of credit
    • Pest control
    • Costs incurred by the bank or the solicitor for the safe keeping of title documents
    • financial guidance in relation to the property's taxes
    • Legal fees associated with evicting a renter for failing to pay their rent
    • Employing a debt collector in order to collect rent that is past due
    • Having replacement keys cut
    • Performing maintenance on appliances and systems such as smoke detectors, air conditioners, hot water heaters, and garage door motors
    • charges associated with the provision of water (to the degree that these costs are not borne by the renter).
    • Surveyor of quantities
    • Patrols of protection
    • The monitoring and maintenance of the security system

    What are some of the traps that claim-makers could fall into that investors might not be aware of?

    financial-investment

    According to Chapman, a tax counsellor may provide you with assistance in determining all of the exemptions, deductions, and credits that you are qualified to claim on your income tax return. On the other hand, it is possible that some investors are unaware of the fact that they are qualified to deduct expenses that have already been pre-paid.

    "If you make a purchase this year that wholly or substantially pertains to the year after this one, you are eligible to submit a claim for a deduction for the complete amount of that purchase this year. This deduction can be claimed for as long as the purchase is relevant to the next year. This is especially helpful when it comes to charges that span both the calendar year and the tax year, such as insurance premiums and subscription fees, which are both paid during the course of the year "He pointed out that.

    You may be eligible to deduct the costs associated with using your home phone, computer, internet service, and mobile phone in the course of managing your rental property. Additionally, you may be eligible to deduct the costs associated with using these items if you used them in the course of managing your rental property.

    If you are an investor in real estate, you may also decide to seek the aid of a quantity surveyor for assistance with your depreciation claims. This is something you can do if you want to give yourself the best chance of being successful.

    This, in accordance with Chapman, "It can be challenging to effectively calculate depreciation, which is typically one of the largest deductions that can be taken. As a consequence of this, a lot of home-owners throw away potential tax benefits by filing their returns erroneously."

    What blunders must investors to steer clear of when claiming tax deductions?

    When submitting their tax returns and making claims for deductions, investors in real estate are more likely to make mistakes than other taxpayers.

    • Attempting to claim an excessive amount of interest expenditures, such as in situations when property owners have tried to claim borrowing costs on both their primary residence and their rental property. This is an example of an attempt to claim an excessive amount of interest expenses.
    • Incorrectly allocating rental income and expenses among owners, such as when a deduction on a jointly held property is claimed by the individual with the bigger taxable income rather than jointly claiming the deduction. This might also happen if the income and expenses from the rental property are not properly distributed.
    • Making an effort to claim deductions for investment properties despite the fact that the properties are not really available for rental on the market. The owners of properties that are rented out should confine their claims to the time period in which the unit was rented or during which it was really available for rent, whichever came first. Any expenses incurred for one's own personal use are never eligible for reimbursement. This is of the utmost importance for vacation homes because the ATO frequently finds evidence that homeowners are claiming deductions for their vacation pad on the grounds that it is being rented out when, in reality, the only people using it are the owners and their family and friends, often at no rent at all. This is a common practise for homeowners who claim that their vacation pad is rented out. The importance of homeowners exercising extreme caution while claiming deductions for their second homes as a result of this is driven home by the fact that.
    • Making a repair claim on recently acquired rental properties It is not possible to make an immediate claim for the money spent on correcting any damage or flaws that were already there at the time of purchase, as well as the money spent on making any renovations. In its place, you have the option of deducting these costs over the course of a predetermined number of years or of adding them to the cost basis of the property in order to account for them when calculating the amount of capital gains tax to be paid. Get ready for the Australian Taxation Office, sometimes known as the ATO, to investigate such allegations and push back against assertions that are illogical.
    • Incorrectly dealing with real estate holdings that are rented out to members of the same household for a reduced fee. This will be considered a residential rental rather than a business one. Even though the income will still be subject to taxation, you will only be allowed to deduct expenses that are either equal to or less than the amount of rent that you have collected. This restriction will apply even though the income is still subject to taxation. If you were banking on negative gearing to help you make up for losses, then coming to the realisation that you won't be able to make a loss is a disappointing development.

    Advice Regarding Property Taxes: Exemption from the Capital Gains Tax (CGT) for a Primary Residence

    Because of the tremendous impact, it will have on your future financial circumstances, the concept of your "primary" or "principal" residence is one that should not be overlooked. When the time comes to sell your property, the proceeds from the sale are one of the few windfalls that are not subject to taxation. This is provided that you earn a profit from the sale of your home. If certain conditions are met, any gains in value that result from the sale of your primary house are free from taxation.

    Figuring out which of your homes is your primary residence is typically not too difficult for most people. However, for some people, the conditions make it more difficult than others. In certain circumstances, you can even be given an option regarding the property that you might lay claim to. It is essential to have an understanding of the following basic rules while dealing with situations like these:

    You Are Required To Live On The Premises

    One definition of a residence is "a building or section of a building that consists primarily of residential accommodation and has land beneath the accommodation." Because of this, it could be a trailer or a mobile home, but it certainly cannot be vacant ground.

    You Must Reside In The Property

    However, the Australian Tax Office (ATO) has outlined a number of elements that are taken into consideration in order to assess whether or not they would allow your claim for primary home exemption. The statute governing taxes does not clarify definitions in any detail. These are the following:

    • How long have you lived in the home before selling it (many people believe this should be at least three months however the law does not require this minimum)
    • The location of the majority of your direct family members.
    • Whether or not you intend to store your own personal goods at the property
    • The location to which your mail will be delivered when it is sent from you.
    • Whether or not the address listed on the electoral roll corresponds to the one listed on the property
    • Establishment of connections for essential utilities like gas, telephone, and electricity
    • Your desire to occupy the aforementioned property

    One Principal Dwelling Unit At A Time

    At any given moment, you can only count one of your homes as your "primary" residence for tax and other purposes. However, when you are moving into a new home, you are permitted a six-month overlap between your previous and new primary residences (between the time of acquisition of the new and disposal of the old).

    Temporary Absence

    Even if you decide to relocate to a different location and rent out your current house at some point in the future, you will still be able to continue to claim the main residence status on the property for up to six years even if you won't be physically there during that time.

    Only the capital gains tax will be affected by this, not your ability to claim deductions on the property that is currently being used for investment purposes. The caveat is that if you choose to consider your previous home to be your primary residence during this time period, you will not be allowed to claim the other property in which you are currently residing as your primary residence.

    Partial Exemption

    There are situations in which a property is only eligible for a partial exemption from property taxes. For instance, if you transfer houses, your new home will likely become your primary residence, and you will likely rent out your previous property after the move. If you rent out your previous home and it is no longer considered your primary residence, you will be required to pay capital gains tax on the property.

    During the time that you lived there and declared it to be your primary residence, however, you will not be subject to CGT calculations. When you use a portion of your primary residence for business or any number of other activities that result in revenue, you are eligible for an additional form of tax relief known as a partial exemption (e.g. a beautician servicing customers in a spare bedroom).

    Under these conditions, the capital gains tax (CGT) will be levied for that period on the portion of the dwelling that is used for such purposes, while the remaining section of the dwelling will continue to be exempt from the tax. If you are unsure how to interpret this particular location, it is highly recommended that you seek the assistance of an expert.

    Pre-occupation Period

    Imagine that you are unable to live on the property because you are in the process of considerably repairing it or constructing a new home on undeveloped land. If this is the case, you can still claim the principal residency in any of the two scenarios given thanks to something called a "pre-occupation exemption."

    According to this exemption, you are permitted to treat the property as your primary residence for up to four years before you actually occupy it. The only requirements are that you occupy the property as soon as it is practically possible and continue to live there for at least three months after you do so. During this time, you are not permitted to list any other location as your primary residence under any circumstances.

    Personal Real Estate Held By Individuals

    With a few minor exceptions, the property can only be claimed as the primary residence if it is held in the individual names of the inhabitants. The CGT break cannot be claimed for any property that is held in a business or trust. The majority of people maintain the title to their house in their own names because of the enormous tax implications this has. It is preferable to consider holding it in only one partner's name if asset protection is a concern. This allows you to continue accessing the CGT benefits while also providing some asset protection.

    Because taxation is not always a clear subject area, and because many rules are open to interpretation, I strongly recommend you to seek the professional assistance of your accountant if you have any questions or concerns regarding this topic.

    Owners of Rental Properties: Here Are the Top 10 Tips to Avoid Making Common Errors

    The Australian Taxation Office (ATO) is reminding owners of rental properties that it observes a number of fairly common errors being made with tax claims each year, as well as the outcomes that result from these errors in relation to investment properties. As a result, it has distributed a list of the top ten slip-ups, along with recommendations for how to avoid making them.

    Divvying Up Costs And Revenue For Co-Owned Properties

    If you co-own a rental property with another person, you have a legal obligation to record rental income and deduct expenses in proportion to your respective shares of the property's legal ownership. In other words, you must report rental income in the same proportion that you deduct expenses. When you are tenants in common, rather than being joint tenants, your legal interests will be divided equally; nevertheless, when you are joint tenants, your interests will be treated independently of one another.

    Verify That Your Rental Property Is Actually Available

    In order to qualify for a tax break, it is necessary for you to make a real effort to rent out your property. This indicates that:

    • you must be able to demonstrate a purposeful desire to rent the property.
    • promoting the property to attract renters and setting the rent to be competitive with those for nearby homes
    • staying away from oppressive renting terms.

    Achieving Perfection in the First Round of Repairs and Capital Improvements

    You can deduct the full cost of ongoing repairs that are directly connected to wear and tear or other damage that resulted from renting out the property in the same year that the expense was incurred. However, the repairs must be connected to wear and tear or other damage. For instance, the cost of repairing a piece of a damaged roof or the hot water system may be promptly deducted.

    Initial repairs for damage that existed when the property was purchased are not immediately deductible. For example, replacing broken light fittings and restoring damaged floors are both examples of initial repairs that fall into this category. Instead, when you sell the property, these expenditures are factored into the calculation of whether you made a profit or a loss on the sale of the property.

    Improvements that do not qualify for an instant tax benefit include remodelling a bathroom or completely replacing a building, such a roof, even if only a section of it is damaged. However, you are still permitted to deduct these construction costs over a 40-year period beginning on the day the building was completed, at a rate of 2.5% annually.

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    Imagine that you need to completely fix a damaged item that is not part of the house, and the total cost of this endeavour is going to be more than $300. (for instance, replacing the entire system for heating the water in the boiler). If this is the case, the expense will need to be written off bit by bit over the course of some length of time.

    Taking Responsibility for Borrowing Costs

    If the fees associated with your borrowing are more than $100, the deduction for those fees will be spread out over the course of five years. If they are less than one hundred dollars, you are allowed to deduct the entire amount in the same tax year that you incurred the expense provided that you meet the other requirements for the deduction. The fees that are charged for loan creation, title searches, and the expenses that are involved with preparing and filing mortgage documents are all part of the charges that are linked with obtaining financial assistance.

    Recouping the Expenses of the Purchase

    You are not eligible for any deductions related to the costs associated with purchasing your home. These costs include stamp duty as well as conveyancing expenses (for properties outside the ACT). On the other hand, if you sell your property, these expenses will be factored into determining whether you are required to pay capital gains tax.

    Recouping The Interest You Owe On Your Loan

    If you finance the purchase of your rental property with a loan, you are eligible to deduct the interest you pay on that loan. However, you won't be able to make a claim for the interest on the portion of the loan that you used for personal expenses, such as paying for a vacation or a boat, because you used the money for such things. Only the portion of the interest that is directly associated with the rental property can be claimed by you.

    Finding the Sweet Spot in Construction Costs

    You should check with your tax advisor to see if you are qualified to deduct some building expenditures associated with extensions, changes, and structural upgrades from the overall cost of the capital works. Starting on the day when the building was completely constructed, you are eligible to make a claim for a capital works deduction at a rate of 2.5% of the construction cost for a period of forty years.

    If someone else has held your property in the past and claimed capital works deductions, you should ask that person to provide you with the data so that you can accurately calculate the deduction you are eligible to claim. If someone else has held your property in the past and claimed capital works deductions, you should ask that person to provide you with the data. If you are unable to obtain this information from the previous owner, another alternative available to you is to seek the assistance of a knowledgeable professional who is able to provide you with an estimate of the costs associated with the construction of the building.

    Making Sure, You Get Credit For The Appropriate Amount Of Your Expenses

    If you rent out your rental property to relatives or friends at a rate that is lower than the going market rate, you are only allowed to claim a deduction for that period that is equal to or less than the amount of rent you received. In addition, you are not eligible for deductions if you let members of your family or friends stay at your home for free or if you use the space for your own personal use.

    Maintaining the Appropriate Records

    You are required to provide evidence of both your income and the amount of money you have spent in order to be able to claim everything to which you are legally entitled. If you sell a rental property, you might have to pay taxes on the profits from the sale of the property. For this reason, you should make it a priority to keep records not just while you are the owner of the property but also for the succeeding five years after you have sold it.

    Figuring Out How to Handle Your Capital Gains When Selling

    When you sell your investment property, the amount of money you receive from the sale of the property might either result in a capital gain or a capital loss, depending on how the property was managed. This is the difference between the amount of money you received when you sold the property and the amount of money it cost you to buy the property and make improvements to it. In most circumstances, this is the difference.

    Your expenses are not allowed to include any funds that have previously been deducted as an expense against the rental income obtained from the property. This takes into account any depreciation or capital expenditures that have been made.

    You are required to disclose any gain you have obtained from the sale of a capital asset on your income tax return for the tax year that corresponds to the year in which the gain was realised. If, on the other hand, you experience a loss on a capital investment, you have the ability to "carry the loss forwards" and deduct it from future gains on a capital investment that you earn in subsequent years.

    1. Understand Your Tax Bill.
    2. Ask for Your Property Tax Card.
    3. Don't Build.
    4. Limit Curb Appeal.
    5. Research Thy Neighbors.
    6. Walk the Home With the Assessor.
    7. Allow the Assessor Access.
    8. Look for Exemptions.
    Personal
    1. Claim deductible expenses. ...
    2. Donate to charity. ...
    3. Create a mortgage offset account. ...
    4. Delay receiving income. ...
    5. Hold investments in a discretionary family trust. ...
    6. Pre-pay expenses. ...
    7. Invest in an investment bond. ...
    8. Review your income package.
    The difference you can claim for negative gearing = $850-$600 = $250. You can therefore claim $250 per week against your income tax. If you are paying tax at the rate of 37% + 1.5% medicare levy, you would receive a tax refund of $96.25 per week.
     
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