Attention need urgent help- tax!

[jacked]

hi everyone i need some urgent help, regarding my house.

im 22 and plan to pay off my house that is rented out in four years, then posibly sell it withdraw a extra 200,000 and buy my dream home!

when i was 21 i built a house for 305,000, got my first home buyers grant reduced the house to 285000, and spent 15000 to finish off the property plus stamp duty, extra fees ect...

i have sinced rented the house out thinking i would be able to receive money at tax time, but as of recently the house postively geared! WHAT DO I DO??

because my rent it more than my intrest what should i do with my offset account beacause atm im going to be paying tax!

im not prepared to buy another investment property atm, im also thinking about buying another car ute for work which i could also claim for work purposes what this be a good idea also??

IM EXTREMLY CONFUSED! im new to this stuff and any help would be really appreciated!!! thanks again.

 

[Peter_Tersteeg]

First of all, make the extra payments into an offset account so you don't have a tax problem when you decide to purchase your dream home. Paying off the existing home loan directly (and then redrawing later) could mean that loan is not tax deductable when you buy your own home.

Next question is, what's wrong with having a positive geared property? You will have to pay some tax, but that's because you're making money!

There are certainly better things you could do with your money than reducing the interest on your investment loan, like putting it into alternate investments such as shares, but paying tax is a very nice problem to have because it means you've made a profit.

 

[Terryw]

What is so urgent about it?

Quick, help, I am making money! What should I do?

Maybe lower the rent?

 

[jacked]

i see what your saying.. i curently owe on the home 160,000 i live at home with very minmal expenses and earn between 60,000 and 70,000 per year, the house is also rented out at 340 per week, do you think it may be wise to pay that tax and try pay the house outright in my goal of 4 years?

and how much tax would i pay do you think? atm my intrest per month is around $980 and i receive around $1250 from rent? do i just pay the tax and concentrate on paying off the whole house asap? and also avoid spending that extra $20,000 on a new work vehicle?

 

[jacked]

What is so urgent about it?

Quick, help, I am making money! What should I do?

Maybe lower the rent?

because this may sound silly but i was under the impression at tax time i would receive money? i just spoke to him tonight and he said i will be paying tax so i absoulety **** my self was not expecting this? just want to know some ideas on what you would think is the best way to handle this.

 

[Rolf Latham]

Hi Jack

After rates, insurance, depreciation, and interest you are still pos geared ?

Celebrate I say, you wont go broke taking a profit

ta
rolf

 

[Terryw]

Don't worry, it means you are making a profit.

Do you have a depreciation schedule? are you claiming non cash deductions such as Travel (to/from property and accounant), depreciation fittings and building, and borrowing costs?

I suggest you shouldn't be paying down the loan as it will tie up your money. Place extra funds in the 100% offset account. This will save the same interest as if paying into the loan.

If you need to pay extra tax then just take this from the offset account and factor it in to your cashflow.

No big deal, it means you are getting rich quicker.

 

[jacked]

Do you have a depreciation schedule? are you claiming non cash deductions such as Travel (to/from property and accounant), depreciation fittings and building, and borrowing costs?

ok so in other words DONT STRESS! yes i do have a depreciation schedule, so for now keep puting all my money into my offset account as i have done, and do you think it would benefit me taking out 25,000 out of my offset account to buy a ute for work which is also tax deductable?

 

[Emo21]

i see what your saying.. i curently owe on the home 160,000 i live at home with very minmal expenses and earn between 60,000 and 70,000 per year, the house is also rented out at 340 per week, do you think it may be wise to pay that tax and try pay the house outright in my goal of 4 years?

and how much tax would i pay do you think? atm my intrest per month is around $980 and i receive around $1250 from rent? do i just pay the tax and concentrate on paying off the whole house asap? and also avoid spending that extra $20,000 on a new work vehicle?

not sure how you are getting positively geared from those figures. quick calculation you are make $3240 more rent than interest payments (quick thought is the interest repayments IO or P&I)
so then taking into account - council rates, water rates, depreciation (i get 5k each form my houses and they are 15yrs plus) so yours being a newish house should be more, property management fees and thats just for starters

 

[Terryw]

do you think it would benefit me taking out 25,000 out of my offset account to buy a ute for work which is also tax deductable?

Depends what you mean by "benefit".

By taking the money out of the offset account you will end up paying more interest. This interest may be deductible, but it is still an expense.

After 5 years what will the ute be worth? maybe $5,000. This doesn't appear to be a good investment. Decreases in value and you will have to pay interest for it.

 

[jacked]

not sure how you are getting positively geared from those figures. quick calculation you are make $3240 more rent than interest payments (quick thought is the interest repayments IO or P&I)
so then taking into account - council rates, water rates, depreciation (i get 5k each form my houses and they are 15yrs plus) so yours being a newish house should be more, property management fees and thats just for starters

yeah i definatley see what your saying, maybe then its not positvely geared... i owe 158, have 50 in my offset, intrest only is just under 1000 per month intrets and principle is 1400 per month

 

[Emo21]

a couple of questions,

* do you have an accountant
* do you use a agency to manage the property
* have you had a depreciation schedule done

 

[jacked]

Depends what you mean by "benefit".

By taking the money out of the offset account you will end up paying more interest. This interest may be deductible, but it is still an expense.

After 5 years what will the ute be worth? maybe $5,000. This doesn't appear to be a good investment. Decreases in value and you will have to pay interest for it.

VERY well said, you guys are honestly helping me out so much, i was trying to find some sort of financial adviser at this time of the night for a chat but i really do appreciate this feedback.

 

[Terryw]

You should probably consider changing it to IO, otherwise you are tying up your cash which you may need in a few years to buy a main residence.

Imagine if you had $300,000 tied up in this investment property, you had the loan fully paid off and were paying tax on the rent. Then you decide to buy a home to live in, but find you have to borrow the lot because you have no cash available. So in addition to paying tax on the rent you would be up for interest on the new home which would not be deductible!

 

[jacked]

a couple of questions,

* do you have an accountant
* do you use a agency to manage the property
* have you had a depreciation schedule done

i have deprectiation schedule, i have agency that managed my property i get charged 5.5% and about the accountant is where i almost had a heart attack tonight!

when i saw him last i wasent looking at buying a house, after that i bought a house and land package he doesent know about that... i rang him tonight to tell him is it worth me buying a ute for work purposses so i get more back tax time.. once i told him my situation about the loan he went quiet and then whacked me with the imfomation about the tax and ect so this is why i posted needed urgent help becaise i was heavily confused about the whole situation but now its slowly making sense,,, i see him next month on the 23rd and im trying to figure out what i should do before i see him then,

 

[jacked]

You should probably consider changing it to IO, otherwise you are tying up your cash which you may need in a few years to buy a main residence.

Imagine if you had $300,000 tied up in this investment property, you had the loan fully paid off and were paying tax on the rent. Then you decide to buy a home to live in, but find you have to borrow the lot because you have no cash available. So in addition to paying tax on the rent you would be up for interest on the new home which would not be deductible!

yeapp definatle makes sense, may i also add you are probably thikning why i am in such a good position at such a young age, i received a sum of around 70,000 off a family member to help me out with reducing the intrest on my home loan.. my plan was to pay off the house, then get another loan and pay that sum off... but what your saying is yeah dont pay the loan off withdraw more to buy my next property pay of family debt?

 

[Emo21]

to be honest dont panic, when you present him with all the costs and figures he should work out a negative figure. if you want to give your self a rough estimate before you see him do a simple calculation - 2 columns one listing all rental income the other listing all rental costs and include the depreciation figure as a rental cost. total both side and subtract costs from income.


or if you have it handy go through the process of filling out the on-line etax which is pretty good at basic rental expenditure

 

[jacked]

to be honest dont panic, when you present him with all the costs and figures he should work out a negative figure. if you want to give your self a rough estimate before you see him do a simple calculation - 2 columns one listing all rental income the other listing all rental costs and include the depreciation figure as a rental cost. total both side and subtract costs from income.


or if you have it handy go through the process of filling out the on-line etax which is pretty good at basic rental expenditure

yeah i get ya makes sense when you look at it like that it wouldent be positively geard,,,, yet but may i also add i only started renting the house out 2 weeks before end of financial year so for this tax return i will be sweet, just need to organise what needs to be done in the near future, for the next tax return.

 

[evand]

Just pay your tax. It means you're making money. What is the problem?

hi everyone i need some urgent help, regarding my house.

im 22 and plan to pay off my house that is rented out in four years, then posibly sell it withdraw a extra 200,000 and buy my dream home!

when i was 21 i built a house for 305,000, got my first home buyers grant reduced the house to 285000, and spent 15000 to finish off the property plus stamp duty, extra fees ect...

i have sinced rented the house out thinking i would be able to receive money at tax time, but as of recently the house postively geared! WHAT DO I DO??

because my rent it more than my intrest what should i do with my offset account beacause atm im going to be paying tax!

im not prepared to buy another investment property atm, im also thinking about buying another car ute for work which i could also claim for work purposes what this be a good idea also??

IM EXTREMLY CONFUSED! im new to this stuff and any help would be really appreciated!!! thanks again.

 

[Terryw]

yeapp definatle makes sense, may i also add you are probably thikning why i am in such a good position at such a young age, i received a sum of around 70,000 off a family member to help me out with reducing the intrest on my home loan.. my plan was to pay off the house, then get another loan and pay that sum off... but what your saying is yeah dont pay the loan off withdraw more to buy my next property pay of family debt?

If you have a loan to a family member then this needs to be considered too. Is it a interest free loan? If not then you can claim the interest on this loan too. Did this family member borrow the money? of just have the cash laying around??