Investing in property is a great way to save for your future. With the right education, an investment in property has the ability to generate income in the form of regular rent and potentially net you a capital gain when it comes time to sell. It’s also a tax-efficient investment, as many expenses associated with being a landlord are tax-deductible.
If you’re interested in investing in property here’s 4 things you should know to ensure you get the maximum tax benefit from your investment property portfolio.
Keep your borrowing separate
If you borrow to invest in property and use the borrowings solely for the purpose of purchasing a rental property, the interest on that loan is tax deductible. However, interest on loans associated with your private home is not deductible. Make sure your home and investment property loans are completely separate, otherwise you could have trouble claiming the maximum deduction come tax time.
Hire a professional property manager
Maybe you are trying to run your rental property business on the cheap, and wanted to self-manage? We get it. Cash flow properties are hard to come by these days, so management is a place you can save a few bucks. But hear us out. A good property manager is a vital member of your team. They can advise on things to improve in the property to get you more rent or tell you problem areas to steer clear of when building your portfolio. In fact, having a property manager carry out a rental income assessment before you buy is a cheap way to get an expert opinion on your property investment purchase. Plus, if you sign a management agreement with them, they’ll often waive their rental assessment fee.
Property management is a tax-deductible expense, so not only is having a professional property manager a great way to save money on your income tax, it’s also like having access to a dedicated industry expert on an ongoing basis. We call that a great investment.
Don’t sell (…for at least 12 months)
Some investing gurus believe you should never sell. But sometimes you just have to. If at all possible, try to hang on to the property for 12 months. This way you reduce your capital gains tax by 50%.
Invest in your knowledge
Much like painting a house, most of the work in property investing is in the preparation. Getting educated, choosing an area to focus on and then finding the right property for the best price all take time and resources. Expenses for subscriptions to property investor magazines and property information websites are deductible expenses and will help you to become a more efficient investor.
We hope that these tips for property investors to save tax have been helpful. The tax benefits of investing in property are wonderful but you should never purchase a property solely to gain a tax benefit. Focus on getting educated and picking the right property from the outset and you’ll be on the road to wealth in no time.
Focus on getting educated and picking the right property from the outset