Quick tax question regarding a rental property.

Hi guys just got a quick question for you professionals out there. I have an investment property currently returning $23,900 in income per year and I have $22,000 in expenses per year. So that $1900 left over I obviously need to pay tax on right? Unless my depreciation will cover it.

But in saying that my question here is this, would this be considered a positive geared property? Even though I still pay 3k out of my pocket per year on my mortgage repayments to make everything break even.

My understanding is that the property is positive geared with negative cashflow? Any advice would be much appreciated! Thanks

 

It is positively geared. You could elect to go interest only and pocket the money.

Consider additional costs like the depreciation to mitigate the tax impact - as you alluded to.

And I assume the costs you quoted include interest and stuff like amortised bank fees.

 

Yeah I was actually thinking of going interest only but I just don't have enough information on that yet.

I was also thinking maybe putting 50k back on the loan then remortgage for a lower repayment and have positive cash flow from the property. (Since I won't take money from my own pocket to pay mortgage repayments)

Yep that's including interest deductions and all costs, only thing not in there that I can think of is the depreciation which should hopefully make it so I pay no tax.

 

You really need to educate yourself about this whole investment thing. Paying no tax is never the most important thing.

 

Its probably more important what you do with the net cashflow after taxes. Use $1 of cashflow to buy $1 of equity is one example.

 

Can you please explain what use $1 of cash flow to buy $1 of equity means? I'm new here and looking to learn.

 

Really ? You get a $1 tax refund. Buy a maccas burger or repay $1 of debt. Which is a benefit ? Hmmm. Now think of $100K.

People buy property to gain wealth. Why not repay $1 of debt to own a further $1 of property.

 

Oh I see what your saying man. Thanks for clearing that up. That was my intention to do that anyway.